A deal worth doing

Wednesday, December 8, 2010

THERE ARE THINGS to dislike in the tax deal reached between President Obama and congressional Republicans, and reasons to be nervous about it. But there are more reasons to support it, which is what we urge lawmakers to do.

On the negative side is the agreement to extend the tax cuts for households making more than $250,000 per year. This is an unwise use of scarce resources. The argument that allowing the top rates to rise would harm small-business job creation has scant basis in reality. As a matter of economic stimulus, relatively few of those dollars would trickle back into the economy. Even worse is the capitulation on the estate tax; for the next two years, the first $5 million of an individual estate, and the first $10 million of a couple's estate, would be exempt from taxation, and the remainder would be taxed at 35 percent.

This is a more generous deal for the wealthy than what the administration had put on the table, which was to restore the 2009 exemptions of $3.5 million per individual and $7 million per couple while taxing the rest of an estate at 45 percent. These changes are unnecessary and expensive and increase the risk of making bad policies permanent.

Why then support the deal? Because in the short term, allowing the bulk of the tax cuts to expire would threaten an already fragile recovery - and because balancing the noxious aspects of the agreement are smart policies that offer a real hope of stimulating the economy and helping those who badly need the help.

The White House secured the renewal of various refundable tax credits - translation: government checks to those who don't earn enough to owe income taxes - along with a 13-month extension of unemployment benefits. These will provide a significant boost to the most vulnerable and hardest hit by the recession. Second, the deal adds a temporary, 2 percent payroll tax holiday that will put money back in workers' pockets - and, presumably, into the economy.

House Democrats are feeling bruised, but these deals represent significant concessions extracted by the White House from Republicans. They are likely to prove effective, efficient ways to spur the economy, as should the measure to encourage capital investment by businesses.

So the compromise is justified - but only if this moment represents a pivot to the harder work of long-term deficit reduction, as Mr. Obama suggested it will. It's encouraging that leaders could come up with "a solution, even if it's not 100 percent of what I want or what the Republicans want," as the president said in Winston-Salem, N.C., Monday. However, this only proves once again that Washington is capable of compromise when it involves spending more and taxing less - in total, adding a staggering $850 billion to the national debt. Filling that hole, and the much deeper one already facing the nation, will be a more difficult and even more urgent task than this week's compromise, and the work on it must begin with the new year.

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