An agreement to extend tax cuts and unemployment benefits is far from perfect, but it should be approved by Congress.
Democrats are understandably angry that President Barack Obama did not fulfill his campaign pledge to keep the lower tax rates for working-class families but not the wealthy. They also are right that Republican concerns about reducing the deficit ring hollow when they also demand extending tax cuts to the top 2 percent of earners — at a cost of $700 billion over 10 years — and a huge tax break on multimillion-dollar estates.
On the whole, however, the benefits of the package, including certainty for businesses and investors for the next two years, outweigh the negatives.
In essence, President Obama convinced Republican leaders to support a long-term extension of federal unemployment benefits in exchange for maintaining tax rates lowered under the Bush administration for two years. By moving rightward in his stance on tax cuts and how they’ll spur economic growth, he also clearly launched the 2012 presidential campaign this week.
If this agreement is not accepted now, hundreds of laid-off workers will go without unemployment benefits and uncertainty about tax rates will continue well into next year when a more heavily Republican Congress would begin the debate anew. With Republican control of the House and a slimmer Democratic majority in the Senate, it would be more difficult to negotiate a package that included benefits for working families like those President Obama secured in the current agreement.
President Obama has long said that he would lower taxes for those earning less than $250,000 a year. Republicans made it clear that they would only support extending the Bush era tax cuts to everyone, not just the middle class.
As a result, the president is pushing a compromise that extends the tax cuts for two years. Included in this extension are child care, college and low-income credits that will especially benefit low- and middle-income earners. It also reduces by 2 percentage points the Social Security payroll tax for a year and extends unemployment benefits for 13 months.
All of these measures are expected to help boost economic growth.
In addition to the tax cut extension, the president agreed to exempt the first $5 million of an estate from the federal estate tax while lowering the rate on estates above this amount beginning in 2011. The current exemption is for $3.5 million. The exemption in the agreement will give $20 billion in tax breaks to the top one-quarter of 1 percent of estates. This is an egregious giveaway.
Despite this, the liberal Center on Budget and Policy Priorities says lawmakers should approve the package because it will help working families and spur economic growth.
“The deal between President Obama and Republican leaders on tax cuts and unemployment insurance has two substantial positive aspects: its surprisingly strong protections for low- and middle-income families and its stronger-than-expected boost for the economy and jobs,” said Robert Greenstein, the group’s executive director.
Economists agree that extending unemployment benefits is well worth the cost and that their abrupt end would slow economic growth.
This outweighs the negative aspects of the compromise plan.
Overall, the package deserves a positive vote in Congress.