PART II, THE NEGATIVES, VIA ROBERT GREENSTEIN and ED KILGORE, DEMOCRATIC STRATEGIST, GIVES US HIS TAKE ON THE TAX DEAL

Continuing the analysis by Robert Greenstein, Executive Director, Center on Budget and Policy Priorities on the tax deal:

"The Negatives



But the package also extends President Bush’s tax cuts for households above $250,000. The Tax Policy Center says these tax cuts average over $100,000 a year for people whose incomes exceed $1 million a year; the Congressional Budget Office ranks such an extension last among the tax and spending options it studied for spurring the weak economy and creating jobs; and Zandi ranks it near the bottom of his list of options.


The package’s biggest disappointment is a provision that would shrink the estate tax well below its 2009 level for the next two years.


President Obama sought to reinstate the already-generous 2009 estate tax rules, under which the estates of 99.75 percent of people who die would be entirely tax free, according to the Tax Policy Center. Under the 2009 rules, the first $3.5 million of an estate ($7 million for couples) would be exempt from the tax, and the maximum tax rate on the taxable portion of estates would be 45 percent; the average effective tax rate on taxable estates would be below 20 percent.




But this was not good enough for Senator Kyl, who insisted on the inclusion of a proposal that he and Senator Blanche Lincoln have pushed for some time. Their proposal would exempt the first $5 million of an estate ($10 million for a couple) from the estate tax and set a maximum tax rate of 35 percent on the taxable portion of large estates. This would provide an estimated $25 billion in tax reductions over the next two years exclusively to the top one-quarter of 1 percent of estates. Those estates would receive an average tax break of about $1 million each — the bigger the estate, the more lavish the new tax break. Only the top one-seventh of 1 percent of estates would owe any tax at all, and their effective tax rate would average about 14 percent, based on Tax Policy Center estimates.



What Should Policymakers Do?


Despite the provisions concerning the upper-income tax cuts and the estate tax, which would squander billions of dollars while doing little to help the economy, policymakers should approve the package. The unemployment insurance and refundable tax credit provisions are essential to prevent large losses of purchasing power that would slow the economy — and large increases in hardship and poverty. The temporary payroll tax cut is also important for spurring economic growth. In all, the package provides $216 billion in unemployment insurance and low- and middle-income tax benefits — $120 billion for the payroll tax cut, $56 billion for unemployment insurance, and $40 billion for the refundable tax credits. (The high-end and estate tax provisions appear to total about $125 billion.)


Moreover, congressional defeat of the package would create a need for new negotiations with the Congress that takes office in January. That Congress will be more hostile to unemployment insurance and tax credits for low-income working families, just as insistent on continuing the Bush upper-income tax cuts, and aggressive in pushing for even more egregious estate-tax policies. Many in the new House majority favor estate tax repeal.


In addition, defeat of the package could lead to a protracted period during which all of the tax cuts have expired and federal unemployment benefits have ended, damaging the economy and even possibly tipping it into a double-dip recession.


The big concern about the package is that policymakers will extend again in 2012, and subsequently make permanent, the high-income and estate-tax provisions, thereby making our serious long-term fiscal problems considerably worse. This is a serious threat, and it is the fundamental danger in the package.


However, there is a potential remedy. In 2012, the economy should be stronger than it is today. In addition, Congress likely will have enacted some significant budget cuts, and the nation likely will be debating the sort of further cuts that various commissions have recently proposed, including cuts in Social Security and Medicare benefits for elderly widows and seriously disabled people with incomes as low as $20,000. At that point, the President will need to make clear that he will veto any legislation extending the high-end tax cuts or the weakening of the estate tax beyond its 2009 parameters, and he should use the bully pulpit to take this case to the country.


The country will not likely believe that millionaires should continue to get tax cuts averaging over $100,000 a year and multi-million-dollar estates should continue to receive $1 million average tax cuts while programs ranging from education to environmental policies to Medicare and possibly Social Security are on the cutting block."

And Ed Kilgore, Democratic strategist, has this to say to Democrats:

"Let's Say Tax Deal Rebellion Succeeds: Then What?



It's too early to tell anything definitive just now, but there is definitely a possibility that Democratic and Republican opponents of the deal struck by the White House and GOP congressional leaders can combine forces to kill it.


Progressives avid for this to happen do need to ask themselves a simple question: then what? It's not like the collapse of the deal is going to place Obama or other Democrats in a time machine where they can start all over in mobilizing public pressure on congressional Republicans to support their own position. Given the strength of conservative opposition to the deal, GOPers are not about to recut it to make it more acceptible to Democrats, particularly if any extension of top end rates and any compromise on the estate tax are off the table. Besides, Republicans are about to take over the House and increase their numbers in the Senate; time is on their side.


If Democrats are considered in media accounts the prime factors in killing the deal, Republicans may well be happy to play a waiting game, refusing to extend unemployment benefits (much less provide additional economic stimulus through a payroll tax holiday or extension of low-income refundable tax credits) and blaming any economic or political fallout on divisions among Democrats. A tax logjam will also provide a convenience excuse for the GOP to continue to obstruct votes on DADT and the START treaty.


So are progressives willing to pay that price for the principle of not extending upper-income tax cuts? I'm asking this question honestly; personally, I consider ever-worsening economic inequality the great undiscussed issue of our time, and think the abolition of estate taxes would be morally obscene. But those who urge a course of action that makes these positions non-negotiable have a responsibility to game-plan this out a bit in terms of real-life consequences. "Fighting" is not a strategy; nor is "drawing a line in the sand." No rebellion is going to change the Obama administration's handling of the 2009 stimulus bill or the 2010 health reform bill. And you can't make the tax issue a no-brainer: yes, Obama did promise to oppose extension of tax cuts keyed to the top bracket, but he also promised, much more vocally, to extend the rest of them, so he's going to have to break a promise anyway you look at it.


In other words, it would be a shame if all this progressive anger at the president is really just retroactive, and about the public option or "card check" or the size of the stimulus or Afghanistan, because the issues bound up in the tax deal are very real and immediate, and by no means symbolic. So they should be part of the discussion, as should any thoughts the president might have about how he intends to regain some political initiative after the big Democratic Congress of the last two years officially becomes a thing of the past. "

Posted by Ed Kilgore on December 8, 2010 9:26 AM