Everybody's talking about the "deal" on taxes that was brokered between President Obama and Republicans in the Senate. Liberals hate it with a burning passion, by and large. Conservative response has been a bit more mixed, with groups like NTU and FreedomWorks begrudgingly supporting it despite its serious flaws and bloggers like RedState's Erick Erickson blasting it as some kind of "TARP II." But, as with most debates in Washington, we're edging further away from reality by the minute as accusations fly. Unfortunately, the "our team vs. their team" mentality seems to be overtaking a sober analysis of the underlying policy at play.
Let me start by saying that I'm not a huge fan of this compromise deal. It is not a permanent extension of current tax rates, which is what the American people deserve and what the economy needs. It reinstates the immoral and economically harmful death tax (albeit at a lower rate than if Congress had failed to act), it increases spending on unemployment benefits without reducing expenditures elsewhere, extends many refundable tax credits (which are akin to spending) that originated from the 2009 "stimulus" abomination, and includes other terrible provisions like an extension of the refundable tax credit (spending) for ethanol. But it also prevents a tax bomb from going off on January 1, 2011 which would have saddled every single American taxpayer and business with higher taxes. Furthermore, it adds a very good pro-growth business expensing measure and reduces every employee's payroll taxes.
When you do the math, both with the dollars involved and with the political calculus, this deal is more good than it is bad. In fact, if you look at a great chart from the American Spectator's Philip Klein, you'll see that $2 out of every $3 involved in this legislation is attributable to pure, broad-based, and widely-supported tax relief. This is the stuff that animated the grassroots and tea party activists, that just about every single Republican has supported, and dozens of more moderate Democrats were on board with as well. The other third of the package is split between the payroll tax holiday (good), the unemployment extension (bad), the "tax extenders" like ethanol (some OK, some bad), the refundable credits from the 2009 "stimulus" (bad), and the business expensing (very good).
In addition, it's worth pointing out that the $857 billion "price tag" that's associated with the bill does NOT mean that we are acutally spending that much money. That's an artifice of Washington-style accounting, where the mere act of NOT taking someone's money through taxation is considered a "cost" to government. This is akin to me saying that you "cost" me $20 if I decide not to steal the $20 bill in your pocket that I had planned on swiping. If I decide not to take your $20, I don't make myself poorer nor do I make you richer.
The amount of actual spending in the bill, where the U.S. Treasury will be writing checks to someone, is a little more than $80 billion. That's nothing to sneeze at, and conservative should rightly oppose those portions of the bill that increase spending without offsets elsewhere, it ain't $857 billion worth of checks falling from the sky with Tim Geithner's signature on them.
That's not to say that some of the portions of the bill that do not result in additional spending aren't also objectionable. A lot of the heartache here is a result of the so-called "tax extenders," which are a batch of provisions that Washington continually reauthorizes for short periods of time (because they're incapable of legislating for the long-term). Some of those extenders, like the research and development tax credit, benefit a broad range of businesses and enjoy widespread support. But some of them are the kind of very narrow special-interest provisions that have made our tax code such an epic disaster. Those provisions are a mess and should be kicked to the curb, but they aren't the majority of this bill or even a sizable minority.
More than anything, this debate SCREAMS out for the need to fundamentally reform our tax code. NTU spearheaded an effort with a bunch of groups, conservative and liberal, back in 2006 to do exactly that and Senator Ron Wyden (D-OR) has been beating the drum on this for years now. The next two years, before the current tax rates "re-expire," is perhaps the best chance we'll have to finally reform our tax code and reduce the $100 billion it costs Americans just to comply with the individual income tax code. It's now or never...