Friday, December 10, 2010

An Era of Compromise

Call it bipartisanship at its best.

On Monday, President Obama negotiated a deal with the Republican leadership to temporarily extend ALL the Bush tax cuts (those for the middle class and the top 2 percent), along with unemployment benefits that have expired. While this deal is not perfect, I believe it was the right course of action.

Although Obama is still against an extension of tax cuts for the wealthiest 2 percent, as it would be detrimental to our staggering economy and cost us an additional $700 billion in lost revenue, he has avoided a larger threat and won an extension of unemployment benefits; a temporary reduction in payroll taxes for 155 million workers; tax cuts for the 100 million middle-class families; and 100% expensing for businesses next year, generating more than $50 billion in additional investment in the U.S. (U.S. Treasury Department). All these measures will provide benefits to millions of Americans and help spur domestic job creation.

For weeks, the debate has been at a standstill with both sides of the political isle unwilling to give in. The federal unemployment benefits expired last month, leaving two million jobless without any support; and the Bush-era tax cuts for every American were set to expire January 1st. If no action was taken and the middle class tax cuts were allowed to expire, 98 percent of Americans would see a $3,000 tax increase and the economy could have shed more than one million jobs (U.S. Labor Department and the Tax Policy Center).

While the deal may not be suitable to everyone, especially those within Obama’s own party, this is the true essence of “compromise”. With their new majorities in Congress, Republicans were holding the extension of unemployment benefits hostage to a deal on extending the upper-bracket tax cuts. The options were limited.

A compromise does not make our president look weak. Instead, it shows that he is truly putting politics aside and doing what he was elected to do: lead. He is not the President of the Democrats, but the President of the United States.

The hope is that Obama’s ability to reach across the political isle may prove helpful to Democrats in the next legislative session. However, Republican senators made clear they are unlikely to budge in their opposition to other national priorities. Yesterday, Senate Republicans blocked Democratic legislation that sought to provide medical care for 9/11 workers; and today they voted along party lines to prevent the passage of legislation to repeal "Don't Ask, Don't Tell”.

With the DREAM act and START treaty soon to approach the Senate floor, I hope the GOP leadership is taking a few tips from our president and will stop the political bickering. Will 2011 bring about a new era of compromise? Let’s wait and see.

For another look at the President's compromise, watch this video from the White House:


  1. I agree with your perspective on compromise.In order to reach an ideal situation,the President has to allow for policies that mix dual party ideologies.With such rampan unemployment, its only logical to extend unemployment benefits as much as possible,and thus balance that with cuts to Middle class families and top 2%, so they don't feel that they are "paying" extra. Additionally, I read jobless claims are at their lowest rate ever since Obama took office,a good sign.Hopefully,Obama's attempts at reforming what is a gigantic mess will yield him a second term!

  2. I am assuming you believe in taxing the wealthiest 2% more because they have more money to give right? I am sure this is because you believe they have more to give. But my question is why is it fair to say to those 2%, because you succeeded in attaining money, we have the right to take it away?

  3. To respond to the second Anonymous post: First, thanks for reading and commenting!

    Second, most economists agree that keeping the tax cuts for the wealthiest 2% does nothing to help our economy. Republicans claim that tax cuts for these top earners would spur economic investment, however the rich have had these tax cuts since 2003 and they ended up saving more than they spent.

    Another argument is that taxing the top bracket more would hurt small business. However, according to the non-partisan Tax Policy Center, average small business income is around $40,000, and therefore, extending the tax cuts for rich individuals making more than $250,000 won’t help.

    The argument is that we need to raise the tax rates for the wealthy back to the Clinton-era levels. During his administration, the tax rate was at 39%, yet we had over23 million net jobs and a $230 billion surplus. Compare that with the Bush administration, rich were taxed 35%, however we had only 3 million net jobs, 0 net private-sector jobs, and a $1.4 trillion deficit.

    We tried the Republican strategy, it didn’t work. Why not help the people that actually need help.

    I explained more in my previous post: “America In the Driver's Seat” (August)

  4. But my question is why is it fair to say to those 2%, because you succeeded in attaining money, we have the right to take more of it away from you than others?

  5. umm...does anyone really care about our deficit? are you kidding me? the us debt is about to explode, we are in the largest deficit probably ever, obama wants to increase taxes next year and we have a new health care overhaul? im moving to canada soon

  6. First of all, it is important to note that with this compromise, NO ONE's taxes will go up.

    However, I think its fair to raise taxes on the top 2%. Generally speaking, U.S. taxes are regressive rather than progressive (rich pay a lower percentage of their income in taxes than poor). We need more stimulus in our economy, and the choice comes to raising taxes on the 98% of middle-class families, or the 2% that can afford it. It is not a punishment, but common sense. In return, when 98% of Americans do better, the top 2% will automatically do better, as well. Just look at Clinton’s administration for proof.

    That’s also why we needed unemployment benefits to be extended. When 2 million Americans are without jobs and living off only $300 a week, they have very little disposable income, and cannot put any money back into our economy. This increases poverty, hurting our nation.

    When businesses and people do not put money into a staggering economy, the government is left to step in. What would you have Obama do? Without his stimulus package, we would have lost millions of jobs and entered into a second Great Depression. The healthcare bill was necessary to help those uninsured and underinsured, which also saved taxpayers millions in unnecessary medical procedures, emergency room fares, and preventable deaths.

    Although the economy is still slow, it is recovering. The jobless rate has DECREASED. The unemployment rate has DECREASED. We still have a lot of work to do, but we’re on the right track.

  7. "rich pay a lower percentage of their income in taxes than poor"

    The tax rate increases as your income increases.

    Say you make $8,000/year. Your tax rate is 10% so you may pay $800 in taxes.

    If you make $400,000/year. Your tax rate is 35%. You pay $140,000 in taxes for programs that really don't even concern you. Even if the tax rate was constant, he would still be paying 40,000 for those programs.

    Obama wants to raise these even further to 50%. 50% of your income is a ridiculous amount to take, regardless of how rich you are.

    The people in this tax bracket are likely very highly educated professionals working long hours under very stressful conditions. And then you want to tell them to work even further double time so that extra money can be sent to somebody working a part-time job serving ice cream at Dairy Queen. Its almost as if the system is set up to take advantage of the hardest working.


    I think this will clarify

  9. What I meant to say was that the middle-class feel the burden of their taxes more than any other income group.

    And Obama doesnt want to increase the top 2% tax rate to 50%, but merely to Clinton-era levels (from 35% that it is right now upto 39%). It worked before, I believe it can work again.

    Finally, the money will be used for government programs and services to help the economy. When Bush left office, we had a trillion dollar deficit. The rich were not investing, but saving. We need to get our economy growing again.

  10. No one is punishing the rich. In fact, this will help them. Think back to the Clinton administration. The rich paid a higher percentage in taxes, while the rest of Americans paid lower. This helped put more money in to the economy, and the rich got richer.

  11. During the Clinton administration, we were in a boom economy due to the internet. You cannot say something will work again unless conditions are identical which they clearly are not.

  12. this is the guy moving to canada...

    while im oppossed to raising taxes in general, that is not the issue at hand. in fact, i think its ok to raise taxes if you are in a big deficit. what im saying is that there is no point to returning money to people when you're going to take it back next year by taking it back in the increased taxes. use the money now to pay down the deficit. you yourself talked about extending unemployment benefits. we are already in a huge deficit this year. how does obama plan to fund these unemployment benefits if we are in a deficit and he wants to use the remaining funds to give back to the people in tax breaks? the answer is by spending money which we do not have. we are going to be in an even bigger deficit/debt problem. what obama is doing is trying to utilize a medium term funding strategy at the expense of the longer term. he's trying to save himself in the 2012 election...

  13. I encourage all to put rhetoric in perspective:

    ~Robert Parrish

  14. If Obama cannot afford to extend unemployment benefits, how can Republicans afford to lower taxes for the rich?

    And how does 2 million jobless Americans wondering on the street living off a mere $300 help our economy?

  15. I fully agree with Ashwani's take on this issue. This deal isn't perfect, but it is MUCH better than many other options (including doing nothing). This shows the American public that President Obama can work with the other side, and that he is committed to protecting the middle class and those who are most vulnerable, especially the unemployed.
    Sure, the other side got some things that they want (and that I might not like). But we got more than they did:

  16. obama can extend unemployment benefits...thats not the issue. but the issue is, if he wants to do that, then he needs to use money from the funds that he has. but if hes using the money he has for tax breaks, then obviously hes digging us into deeper deficit problems. all im saying is, if you want to fund different programs including unemployment, you need money for it. dont give tax breaks and use the money for these programs... dont do both: giving tax breaks and spending money on these programs that doesnt make sense.

    i dont want to get even get into the debate over republicans giving lower taxes to the rich...that was in a much different economic environment. further, different groups are receiving the tax breaks, middle class vs. upper class. the usual arguments over the effectiveness of these strategies still apply (and they will forever be debated).

    im thinking about other consequences as well. we get into too big of a deficit, then interest rates will start rising...this is contrary to the Fed's policy of keeping rates low to stimulate the economy. one needs to keep this in mind as well.

  17. quite interesting i made that point about interest rates going up last night. check out this article in the paper today:

    we dont need the tax cuts right now.

    "The uptick in long-term interest rates, much of it recorded since President Obama and congressional leaders struck a deal to extend tax cuts and unemployment insurance benefits, works counter to the efforts of the Federal Reserve to reduce rates by buying bonds. If the higher rates persist, or if they rise further, it would work against a stronger economy, undermining some of the benefits of stimulative efforts from both fiscal and monetary policy."

  18. You should definately watch this video from the White House, clearly explaining what this tax cut compromise will do:

  19. Obama won another year of jobless benefits AND major new temporary tax incentives such as the payroll tax holiday - measures economists view as powerful options for bolstering the recovery


Do You Agree or Disagree? Why? Please leave comments.