Making a judgment on the tax deal


What should progressives think about the proposed tax and unemployment insurance deal announced by President Obama? Here are some quick notes, meant as background resource for the discussion - more of a blog posting than an organized article.

Some disclaimers:
1) I have not studied the plan in detail, nor much of the commentary.
2) If I was in Congress, I don't know how I would vote. See the final paragraph.
3) I don't discuss the need for organized mass movements. So far, massive protests and general strikes in Greece, France, Portugal and Ireland have not defeated austerity programs there. But it is certain that without massive organization and mobilization, neither the workers in Europe nor those in the U.S. can win. Far too much attention is paid to quarterbacking presidential and congressional tactics.

A few background facts

* The economic crisis continues for the majority of working families.
* The richest 1 percent have seen their income triple in the last 20 years. Most of the rest of us have stood still or moved backwards.
* The Bush tax cuts did little to stimulate the economy - the recovery from the Bush-II recession was the weakest since World War II.
* The Clinton tax increase on the wealthy in 1993 did not hurt the recovery from the Bush-I recession. That recovery resulted in the lowest unemployment in decades.
* Corporate profits are at record levels, Wall Street bonuses still in the stratosphere, and the super-rich are rapidly regaining the dizzying heights they occupied before the current crisis hit.

Some things in the deal that are bad

* Provides tax breaks for the super-rich - money they don't need. Giving more money to rich people might boost sales of luxury cars or even yachts. But it is likely that the CEOs of Goldman Sachs, JPMorgan Chase, ExxonMobil, and News Corp. (Robert Murdoch) - each of whom will receive more than $1 million from this deal - already have as many yachts as they need. This does little to stimulate the economy, and increases the wealth and power of a class of people whose actions are increasingly destructive to the economy and the general welfare.
* Allows a huge $5 million to $10 million exemption for inherited wealth, and a very low rate of 35 percent above that. Allows further growth of a parasitic, hereditary aristocracy in the U.S.
* Continues the hedge fund managers' loophole and special treatment of capital gains and dividends, rewarding rich people for gambling in the financial markets.
* Allowing corporate tax deductions for 100 percent of new investment is a giveaway. It creates very few jobs, at high cost.

Some things in the deal that are good

* Avoids increasing taxes on working families. A worker making a typical wage will avoid a tax increase of about $800 a year.
* A 2 percent reduction in the payroll tax, thereby increasing workers' take-home pay. This replaces the more progressive Obama stimulus "making work pay" credit.
* Continues a college tax credit, and a few other good things.
* Extends for another year Temporary Extended Unemployment Compensation (TEUC - extended unemployment benefits for up to 99 weeks).

Defending and condemning

President Obama defends the deal. "This isn't an abstract debate," he said. "This is real money for real people and it will make a real difference in the lives of the folks who sent us here. I'm not here to play games with the American people or the health of our economy. My job is to do whatever I can to get this economy moving. My job is to do whatever I can to spur job creation. My job is to look out for middle-class families who are struggling right now to get by, and Americans who are out of work through no fault of their own."

Any criticism of the deal that ignores the issue of Temporary Extended Unemployment Compensation is irresponsible. If you condemn the deal, you have to explain how you will win the fight for unemployment benefits for over 4 million families, 1 million of whom have already been cut off.

Getting the economy moving: how?

On the other hand, the president says, "My job is to do whatever I can to get this economy moving. My job is to do whatever I can to spur job creation." But although this deal prevents some backward motion, it does not include any of the urgently needed measures to accomplish those goals (getting the economy moving and job creation). Those measures were never even on the table for negotiations. I agree with Campaign for America's Future leader Robert Borosage on this point:

"In a period of mass unemployment, the result of failed conservative economics, we get in return a largely conservative recovery package built around tax cuts. No public investment to create jobs. No aid to states and localities to save the jobs of teachers and police. No investment in new energy to keep us from defaulting in the race to capture a slot in the green industrial revolution." Borosage goes on to acknowledge the positive features of the deal.

Sen. Bernie Sanders, I-Vt., also makes the point: "... if we're serious about creating jobs in this country, which should be our main priority, that's one of the worst ways to do it. [It's] much better to take that money, invest in our roads, bridges, railroad systems, infrastructure. You create jobs doing that."

Deficit argument is a mistake

Progressive critics of the deal make many good points about its weakness. But they tend to emphasize the budget-busting aspects. This is a mistake.

For example, Congressman Peter Welch, D-Vt., calls the plan "fiscally irresponsible. Adding $700 billion to our national debt, as this proposal would do, handcuffs our ability to offer a balanced plan to achieve fiscal stability without a punishing effect on our current commitments, including Social Security and Medicare." Nancy Pelosi issued a statement saying, "Any provision must be judged by two criteria: does it create jobs to grow our economy and does it add to the deficit?"

As a growing number of economists agree, including some conservative ones, deficit spending is both necessary and good for the economy as a temporary measure. As economist Dean Baker sums it up: "Of course we would be much better off if the $50 billion going to the rich each year instead went to other purposes, such as preventing cutbacks by state and local governments or rebuilding infrastructure, but if the question is whether the economy will do better with the tax cuts or a smaller deficit in 2011 and 2012, the answer is that we will unambiguously do better with the tax cuts to the rich."

And, we might add, the extension of unemployment insurance and tax breaks for working families are a positive good, not just a necessary evil.

By using the deficit as an argument, progressives give ammunition to the Republicans when, early next year, they will attack every useful government program in negotiations over raising the debt limit. Whatever was gained in this deal, and more, could be lost in this coming battle.

Whatever the politics, the economics of this are clear. While the economy, and the working class, are suffering from an economic depression, the deficit is not a problem. Deficit spending is necessary to overcome the crisis. The main problem with tax cuts for the rich is not that they cost $50 billion per year. It is that the $50 billion, and more besides, would be much better spent on other things.

Making a judgment

Spending money on tax cuts for the rich stinks. It is offensive to the majority of working Americans who are suffering in this economic crisis. And it is bad economics. But if it is a price necessary to continue unemployment benefits for millions of families, and to prevent a tax increase for all workers, it might be worth it.

The real weaknesses of the compromise are not what it contains, but what it does not contain. Federal intervention is urgently needed to prevent massive spending cuts and tax increases at state and local levels. Federal intervention is urgently needed to directly fund infrastructure and other jobs-producing, useful and necessary investments. But there is a real threat that the corporate-based ruling class, acting through the Republican-Blue Dog block in Congress, will go in the other direction.

They will try to prevent any of the necessary actions, and attack Social Security, Medicare, health care, education, and every program that benefits the people. To the extent they are successful, recovery from the economic crisis will be difficult, and the likelihood increases of a deeper depression, with double-digit unemployment, continued foreclosures and evictions, and deterioration and breakdown of local government services. The political judgment of the compromise should be, at least in part, based on whether it strengthens or weakens the forces that are opposing this corporate-Republican plan.

Photo: Jobless workers wait in line for information on unemployment benefits and job listings in Las Vegas this September. (AP/Julie Jacobson)


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  • The loss in tax revenue will reduce the amount of money available to fund jobs programs. The rise in the deficit will be used as an excuse to cut the Social Security and Medicare.

    The Democrats still control Congress. This is no time to give in to the Republicans. The public supports Obama on not extending tax cuts for the wealthy. Obama isn't making a smart bargain and is playing into the Republicans hands.

    Posted by Sean Mulligan, 12/09/2010 3:46am (5 years ago)

  • While I will agree that the decision to pass the unemployment benefits is a major part of the reason to make a deal, I support the President, I would have of course preferred that the rich were taxed. Some things unfortunately, will have to wait given the current situation where the power of the President has been weakened by the losses in November. The Democrats are truly in need of reorganizing since even those currently in office cannot prevent a filibuster at this time to get the 2/3 rds necessary to pass the bills on their own. Just wait what will happen next year. When a power is shared in congress deals or agreements are the norm for the period. Until the working class has a majority control of congress by representatives of its class then will the pendulum swing their way. For the time we need to support the President. There will be other battles ahead and we need to prepare for them as well. Organize at the grassroots!

    Posted by Richard Castro Jr., 12/09/2010 2:44am (5 years ago)

  • Why did President Obama wait until after the midterm election and have to concede to this lousy deal? Before that election he could have gotten his Democratic controlled Congress to END the Bush tax cuts for the rich, reduce more taxes for the middle class, end all of the wars, cut the military budget and use that money to aid the States.

    Posted by Howie, 12/08/2010 11:21pm (5 years ago)

  • The article raises important questions, but it does not raise the question of strategy taken by Obama. Much of the opposition from working people and Congress is about the timing and the willingness to compromise too easily and too early and from strength. The same pattern occurred around the health care debate when Obama caved even before he was nominated. That was the role of HCAN.

    Many in Congress wanted Obama to hold out until December 31, if necessary. What was the rush? The Congressman from Vermont did say that he would probably support the "deal" if no alternative presented itself by the end of the year.

    Posted by David Bell, 12/08/2010 9:08pm (5 years ago)

  • Surely we should expect a better analysis from the heirs to the Daily Worker. Why the failure to take a position. Richard Trumka of the AFL-CIO is not afraid to call things as they are. Neither is the only self proclaimed socialist in the U.S. congress-Senator Bernie Saunders. Why should the heirs to the very people who built the labor movement, be afraid to criticize this president when he betrays his working class base to soothe his Wall Street supporters?
    Please take a real position. If you honestly believe that this is the best we can expect from Obama, then say so. If you think we can do better, than say that. We need a Marxist analysis, not another equivocation.

    Posted by Elliot, 12/08/2010 8:12pm (5 years ago)

  • Thank you Art Perlo for your thoughtful analysis. One point I would like to take issue with. You say that progressives make a mistake to emphasize the "budget-busting" aspects of the bill, saying:
    "As a growing number of economists agree, including some conservative ones, deficit spending is both necessary and good for the economy as a temporary measure."
    I wholeheartedly agree with the preceding statement. However, we will have to pay down the deficit eventually, and economists also agree that tax cuts for billionaires will not have significant stimulative effect. I'm all for deficit spending (and much more of it-provided it stimulates the economy), but not deficit spending to give the Bill Gates' of the world $100,000+ in tax cuts, while working people are losing their homes, going broke for medical bills, etc.
    I believe the American people (and not only the progressive base) were ready to stand by the President's side in this fight. I understand why a lot of people feel "left out in the rain". I hope this doesn't represent a Clintonian turn for the remainder of President Obama's first term (I remember the second half of Clinton's term as an assault on working people....NAFTA, welfare cuts, threats of Social Security privitazation, etc)...It was actually during the Clinton years that I became radicalized. (and it wasn't because I was gaga over his administration either)

    Posted by Brad, 12/08/2010 7:42pm (5 years ago)

  • Art's point that responsible analysis must include a discussion of how to win the fight to extend UI benefits rather than simply dismissing the bad parts.

    The latest out of progressive circles seems to be to push to improve the deal through amendments -- perhaps by increasing the size of the portions of the deal that impact working families, including making provision for the 99-plus-oners.

    If that can be done without wasting a lot of time or killing that chance of passage, they should do it.

    Posted by Joel Wendland, 12/08/2010 6:47pm (5 years ago)

  • Unintentionally hilarious, yet at the same time tragic, article. The author ties himself in knots and doesn't have a clue what he's talking about, something that he himself states at the outset. Does Art Perlo actually exist or is this a spoof? Perhaps better posted to The Onion.

    Posted by Tom Bramble, 12/08/2010 6:03pm (5 years ago)

  • Thank you, this is a helpful contribution. There is wide disgust at the rich getting more, and this outrage is good. Rage can be organized into constructive political action. But I worry that the politics of millions of unemployed through 2011 without unemployment insurance might not see the source of the problem as clearly. Worsening economic conditions sometimes produce worsening political conditions. Your initial point about the continued need for mass action is quite true, but I don't think there is a need for decreased attention to legislative and political process.

    Posted by Beth Edelman, 12/08/2010 5:32pm (5 years ago)

  • Two things:

    The 2 percent reduction in the payroll tax - isn't that being taken out of Social Security? I don't see how that is a "good thing" at this point.

    Caving in to the Republicans with billions of dollars in tax cuts for the rich for 13 months of unemployment insurance is a horrible trade-off. If we look back over the past few fights on extending UI benefits, we see the Republicans eventually give in a vote for it when they get enough heat from their home districts. There is no reason to believe this would not happen again.

    In my opinion this tax deal is terrible, period.

    Posted by Todd Tollefson, 12/08/2010 4:04pm (5 years ago)

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