Why Obama's Tax Cut Deal Sucked

Close to a month has passed since Obama signed the new tax code into law. And close to a month later, it still sucks.

I will break down individually why it blows like Kat Stacks at an Album Release party.

What Republicans Got From the Deal
1) Cutting Taxes For Income Above $250K
During Obama's entire 2008 Presidential campaign he told us that cutting taxes for the rich was stupid. According to him, it was also fiscally  irresponsible. So what did he do?  He cut taxes for the rich. The Republicans who are so ready to cut the deficit, have no problem increasing the deficit with tax cuts (Tax Cuts do not pay for themselves). Extending the tax cuts just for this top bracket for 2 years costs $81.5 billion. All of that revenue that we lost is generated from a 4% tax increase on those making over $250K a year, who have a disproportionate amount of wealth in this country. In 2007 the top 5% made 62% of the wealth, and estimates are that since 2007 it has increased to about 75-80% of all wealth in the United States is owned by the top 5% or around 15.3 million people.


Why it is even worse: January 2012 those tax cuts expire. And Obama said he is "ready for that fight on tax cuts" NO HE IS NOT.. He just had the fight. He gave up. He will cave in 2011-2012. When the Presidential Race for 2012 starts, Republicans will scream that Obama wants to raise taxes.. They will say it so much it will be politically damaging to his reelection bid (since most people don't know the intricacies of politics) and he will have to permanently extend the Bush tax cuts for the rich. Which is another $700 billion dollars to the deficit (which could pay for the entire Stimulus Bill, or the entire Health Care Bill).


I think the most telling thing of the whole deal was that Obama said "The Republicans were holding the American people hostage". Has he ever heard that you don't negotiate with hostage takers? Now he has set the precedent that all the Republicans have to do is threaten to hold up a bill that will help Americans, and he will give them what ever they want. This type of cowardice, and weakness has become synonymous with the Democrats. Considering they are the party that is only partial owned by big business, WE ARE SCREWED. When someone takes "hostages", you tell them what you are going to do. Not what you will do for them to "release the hostages". It is political weakness that is just amazing.


Why he could have won: Over 60% of Americans polled stated that they favor extending tax cuts for those making under $250K a year only (60 Minutes/Vanity Fair Poll, also backed up by a CBS poll, and a Gallup Poll). And when stated that if you use the tax hike on the top tax bracket to pay off the deficit/debt the number shot up to 75%.  Also, there is no way the republicans would have allowed for taxes to raise on the middle class, to give taxes for the rich. If Obama waited it out, he would have won. And if Republicans did allow taxes to go up on the middle class to help the rich, they would have gotten wiped off the map in 2012. Politics 101 "when stuck between a rock and a hard place, give up before you get crushed." Even a semi-inept politician knew they had the Republicans in a tough spot.

2) Cut of the Estate Tax

The Estate Tax is a tax on money given to someone when a person dies. For example when the Hiltons pass their money will be given to Paris Hilton, and there would be a tax on that money. In 2010 Congress completely set that tax to zero. In 2011 it was set to go back to its normal rate of 55% with a tax exemption on the first $3.5 million (which would be over 90% of people exempted). Obama and the Republicans cut this tax to 35%, and exempted the first $5 million (which only less than 2% of all estates are worth more than $5 million).

Why It Is Even Worse:  This accounts for $68.3 billion in lost government revenue, adding to the government deficit. All in the name of making sure Paris Hilton can keep more of the money she worked for (laugh along with me). I understand the process of leaving your money to your kids, so they do not have to work, BUT you should not be entitled to all that money because you did nothing to earn it. You got it by birth. That is not an accomplishment. Also the Republicans were not even using this as a negotiation tool. They were going to let it expire and go to 55%, and not worry about it. Obama gave this to them, without provocation.


Why He Could Have Won: Politics is all about framing. No one likes kids born with silver spoons in their mouth. Effectively explaining what this tax is, and state the Republicans want to help Paris Hilton get millions of extra dollars for doing nothing but being born would give great perspective to this. People will support the position to raise the estate tax overwhelmingly with better understanding of the issue.

3) The Payroll Tax Holiday

The Payroll tax is the 6.2% that is taken out of everyone's paycheck who makes less than $108,000 a year. This 6.2% goes toward Social Security Benefits for you when you retire. You will receive this money back in payments when you are at retirement age. In the deal for 1 year it decreases the tax from 6.2% to 4.2%. To most of us that is 2% more of our paycheck that we can keep this year. But it is potentially life changing for all of us.

Why is it even worse: In the 2011 year, this 2% decrease in tax will divert $111 billion dollars from Social Security. Republicans always complain about how Social Security is bankrupt, an entitlement for people looking for government handouts, and have worked tirelessly to end Social Security since FDR enacted it in the 1930's. When this tax holiday comes to an end next year, it will be hard for the payroll tax to go back to 6.2% without Republicans saying he is taxing the American people during this recession. Obama played right into the Republicans hand by creating the first nail in the Social Security Coffin.

Why He Could Have Won: It was a needless give in to the Republicans. No one asked for it. He gave it to them as a treat for "bipartisanship". Citizens love Social Security because it works. The Republicans hate it because it is helping out citizens. Without Social Security millions of Elderly Americans, who did not have a retirement plan established through their employer would be living on the streets. Also those who had retirement plans that became insolvent by the time they wanted to retire, have to rely on Social Security, and they would be living on the streets if they did not have it. Social Security was enacted by FDR as part of the New Deal in 1935. From 1935 through 2009 Social Security has ran a $2.5 trillion surplus (meaning it has taken in $2.5 trillion dollars more than it has paid out, which is presumably reserved for us taxpayers who have yet to hit our 60's). The Republicans complain about there not being any money left in Social Security, that would be because we used the Surplus to spend it on 2 Wars, and Tax Cuts. Also according to the Congressional Budget Office (CBO), Social Security will be able to pay all benefits up until 2037. Making Social Security the most successful government program ever created. The CBO also notes that between 2037-2081, it is projected to pay out at least 75% of the benefits to all people on Social Security. This $111 billion taken out of Social Security doesn't help the argument that Social Security is good, it also doesn't help Social Security staying solvent if the Tax Holiday becomes permanent. Also this measure will hardly save jobs. In the short term it may save some, but it will be nowhere near enough to stimulate the economy.

What Should Have Been Done: Obama should have left the payroll tax alone, and when we were out of the recession tweak how Social Security is funded. Currently those making over $108K are exempt from the payroll tax. There should be a payroll tax on EVERYONE as long as you are not an employer (since the payroll tax already does affect Employers). With a payroll tax of maybe 2% on all income over $108K, Social Security could have been funded, and paid out 100% of benefits well into the 22nd Century.



What Obama got in the Tax Cut Deal

1) Tax Cuts for income under $250K. 

This accounts for $463 billion of the tax cut deal. This is largely beneficial, BUT he didn't need to give away so much to get it passed. If this was the only content of the tax cuts, the Republicans would have voted for it no matter what. The Republicans knew it would have been so damaging to let taxes raise that they would have had to sign it.Representative John Boehner (R-OH) said that if tax cuts for income under $250K was his only option, he and other Republicans would have voted yes.


2) Unemployment Extension

This measure costs $56.5 billion, and allows for a 13 month extension for the 99ers (people who are receiving unemployment, and exceed the current 99 week unemployment benefit). The country is losing jobs, people are massively underemployed, while that number is slowly going down, this was unnecessary to do in return of all Obama gave to Republicans. Unemployment Extension has gone through Congress 5 times since the Recession started without once needing tax cuts for the rich. Obama hinted that the only way to get these extensions is give the Republicans tax cuts for the rich. THAT IS A LIE.. If he brought the extensions to a vote, they would pass because Republicans cannot be seen as anti-Unemployed. In time of a Recession that is a political guarantee that Unemployment gets extended, no matter how much people will hate it.



3) Assorted Tax Cuts/ Credits

Makes up $77.3 billion of the deal. There is a tax credit for families with college students. But also includes about $11 billion worth of energy subsidies and a temporary option for businesses to write off 100% of their expenses in 2011. These are all good things, and something that is an actual use of compromise. But could have been much larger, inclusive, and thought out. Also people who are often opposed to Obama say he received a great deal for the sole reason that there is Alternative Energy help. That's bullshit. The only way to successfully move forward on Alternative Energy is not a few billion dollars in a tax cut deal. Moving forward on Alternative Energy require comprehensive legislation.


After all of this, the "Lame Duck" 111th Congress Repealed Don't Ask Don't Tell (allowing soldiers to be openly gay in the army), ratified the START Treaty (reduces and modernizes Russia's nuclear weapons arsenal), passed the 9/11 First Responders Bill (gives health care to those who assisted in the rescue clean up at Ground Zero), and the Food Safety Modernization Act. Everyone credits Obama's cave in on tax cuts as the reason why all of this passed, but that is nonsense.

If Obama brought just tax cuts for those making under $250K and that is the only option, it would have passed.

The 9/11 First Responders Bill would have passed because Republicans could not have let themselves become the party against Firefighters, Police Officers, and other Heroes.If they did become that, the Democrats could have ran on that for 2 years for their political gain.

The START Treaty would have passed because Republicans were facing Extreme Pressure from many well established Republican Defense/Military Experts. This could have potentially given Democrats the "strong on Defense" moniker in 2012.

Don't Ask, Don't Tell, may or may not have been repealed. It is tough to tell whether it would have without the tax cut deal. This Repeal had widespread support from the entire country. Americans know it is wrong to allow a person to fight, and potentially die for this country, and at the same time tell them that we don't want them to be who they are. Since the creation of DADT 13,000 people have been discharged from the military for being gay (a weird proportion of those 13,000 have been Arabic translators, which seems like it would be necessary to have as we fight wars against Arabic speaking countries).

I commend Obama for getting all of this passed. BUT I believe he would have gotten it all passed if he had balls, and pushed them through the Congress. He didn't need to give 1 of the biggest cornerstones of Liberal politics away, and potentially destabilize Social Security for it.

He is a smart guy. But Politically his advisers missed many opportunities to get most of what he wanted (and what the American people wanted).

His compromised sucked, and he shows his political weakness in this deal when Republicans got most of what they wanted, plus surprises they never would have gotten in a normal political climate. All the while Obama being President, A Democratic House, and Democratic Senate.


What I would have done: I would have given a tax cut for income under $500K as a compromise to the Republicans. Also a tax cut for any small business owner making over $500K. In return I would have asked for Unemployment Extension, Don't Ask, Don't Tell Repeal, Ratification of the START Treaty, Passage of The Dream Act (grants children brought into the United States illegally by their parents, a 5-10 year path to citizenship, if they attend college or fight in the U.S. military), Pass the Food Safety Modernization Act, Tax Credits to College Students, and negotiations to review the Cost of Higher Education and what could be done to reform that.


How I would have gotten it done: I would have met with the entire Democratic Representation in Congress, and told them to all vote my way. If not come next election I would support a primary opponent, and would not give them any support in the General Election. I would have told them to get out there every chance they can on TV, Radio, etc. to talk about this, and say that the Republicans are blocking all of these things that help the American people. I would then meet with the Republican Leadership, and I would tell them "This is my proposal on a compromise. The entire Democratic Party is unified on this compromise. If you do not agree to this Compromise, I will use the Presidential Bully Pulpit, and will call you out every chance I get. I will hold press conference day after day, telling the American people that you are holding their tax cuts hostage during a recession. Day In, and Day Out I will go out to the media and tell them why you are wrong, and I will explain everything I want to get done." The Political Pressure from this will cause the Republicans to cave in.

At the end of the day, Politics is a Strong Man/Woman Game. It is not for the weak willed.

That is why Obama's Tax Cut Deal Sucked.