In the early 1980s, a television advertisement for Hefty brand trash bags declared the competition "wimpy, wimpy, wimpy." That commercial came to mind when I read about President Obama's deal with the GOP regarding the extension of Bush's tax cuts.
Think Progress has the details, but here are the major points. Under the plan: 1. Bush's tax cuts will remain in place for over two years; 2. in exchange, expired unemployment benefits will continue for another 13 months; 3. payroll taxes will decline 2 percentage points for a year; 4. various tax credits (e.g., the Earned Income Tax Credit) will remain in place; and 5. the estate tax will return at a rate of 35% with a $5 million exemption.
Undoubtedly, mainstream media will declare the deal a sign of Obama's heralded pragmatism. Nevertheless, the compromise represents a retreat from one of the issues that defined his campaign.
Furthermore, the package of tax cuts will also likely add to the deficit because it was not coupled with any spending cuts. The Bush tax cuts have already increased the size of the national deficit. Extending them will likely lead to the same result. Finally, as Think Progress observes, many of the cuts -- particularly the estate tax provision -- represent a major windfall only for the most wealthy households in the nation.
It is unclear how this deal makes sound economic policy. Instead, it looks more like politics masquerading as policy.
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