Tea Leaf: A favorable tax deal, and a lousy jobs report

Published: Tuesday, Dec. 7 2010 4:00 p.m. MST

President Barack Obama gestures during a news conference in the White House briefing room in Washington Tuesday.

J. Scott Applewhite, Associated Press

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Just imagine … a liberal Democratic president striking a deal with conservative Republicans, while other liberal Democrats are fuming!

Monday's announcement of an agreement between the Obama administration and the Republican congressional leadership was a positive development. Both sides gained at the bargaining table, while both sides also gave on issues they find distasteful.

Meanwhile, about-to-be-outgoing Speaker of the House Nancy Pelosi is angry with the president for selling out. She and other members of the Democratic elite are suggesting that their support of such a broad agreement should not be taken for granted.

The Republicans get what they wanted: an extension of the 2001 and 2003 tax cuts for ALL taxpayers for two years, as well as relief from the Alternative Minimum Tax (AMT). The Republicans also get clarity on the estate tax, with a 35 percent tax rate on estates larger than $5 million for an individual and $10 million for a couple. More aggressive write-offs for business investments made during 2011 were also included.

The president gets what he wanted: a 13-month extension of unemployment benefits for millions of longer-term unemployed people; a nearly one-third reduction in the Social Security withholding rate for workers (from 6.2 percent to 4.2 percent on incomes up to $106,800); and an extension of the earned income tax credit.

Just imagine … the political game of give and take — of actual cooperation between political parties — working for a change.

Political reality suggested the need for compromise. Failure to reach any type of tax agreement would have seen tax rates for all income earners move higher on Jan. 1, now less than four weeks away. This is exactly what a fragile economic recovery didn't need.

In addition, the president was painfully aware that early January finds the Republicans taking control of the House of Representatives. The GOP would have immediately passed an extension of the Bush tax cuts for all taxpayers, perhaps trying to make it permanent.

The Senate, still under a slight Democratic majority, might have actually gone along with a tax cut extension, although not likely making it permanent. Note: 23 Democratic senators are up for re-election in 2012, while only nine Republicans face the voters. The Democrats clearly saw in early November what following the strict Democratic line did for many other Democratic House and Senate members.

With likely congressional approval of extending the tax cuts for ALL income earners, the president would have then had to make a choice: Veto the bill or sign it.

What it all means

In my view, three powerful and positive developments have occurred in recent weeks.

The first was success by voters in early November of derailing the ever-expanding nature of government fueled by the administration and the Democratic leadership in the Congress.

The second was the relative success of the Obama deficit reduction commission in gaining traction in our longer-term need to control the growth rate of government spending. Yes, the commission only had 11 of the required 14 votes to send the package to the Congress. However, a critical dialogue has begun.

The statement by former Clinton White House chief of staff Erskine Bowles, one of the commission co-chairmen, that "the era of deficit denial in Washington is over" will (hopefully) resonate for weeks and months to come as politicians (hopefully) get serious about the need to control the growth rate of government spending — and place this country on a more fiscally stable path … imagine that

The final development is the tax agreement noted above. The ability of political parties to come together for the good of the nation, above their individual pursuits, is essential to dealing with major issues.

The U.S. economy?

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