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Morphing the Bush-era tax cuts into a new economic stimulus?

December 6, 2010 |  5:24 pm

Obama Facing a backlash from the left, the Obama administration on Monday defended the deal it cut with Republicans to extend all of the Bush-era tax cuts by characterizing the plan as a stimulus package.

Granted, administration officials didn't use that exact phrase in a conference call with reporters Monday afternoon. But they made the point repeatedly that the "framework of a deal" accepted by both sides includes well over $175 billion in stimulative tax cuts and spending increases, in addition to the two-year extension of all the Bush-era tax cuts.

These include:

  • Cutting the payroll tax paid by workers by nearly a third, from 6.2% of wages to 4.2%, for one year (estimated cost: $120 billion)
  • Renewing for 13 months the extended unemployment benefits that expired Dec. 1 (estimated cost: $56 billion)
  • Allowing businesses to write off 100% of their equipment purchases in 2011, followed by an additional year of a higher depreciation allowance (no cost estimate available).

Those are good policies, and they make more sense economically than extending the Bush-era tax cuts for the wealthiest Americans. But other elements of the plan smack of the two sides using the slow economy as a pretext to extend every temporary tax cut on the table. For example, administration officials said the deal calls for a two-year extension of the American Opportunity Tax Credit, which allows students to write off more tuition costs. That won't stimulate the economy as much as it will advance an administration priority, to wit, enabling more Americans to go to college. (Not that there's anything wrong with that.)

The administration's spokespeople also stressed how much President Obama opposes parts of the deal he just signed on to -- in particular, extending the lower rates on the top two tax brackets and adopting the GOP position on the estate tax (a 35% rate, but only on estates larger than $5 million). Those provisions expire in two years, meaning they will become issues in the next presidential campaign. Given how well Democrats handled the Bush-era tax cuts in the run-up to the midterm election, that hardly seems like an advantageous position for them in 2012. But unemployment should be lower then and the economy better, so at least the backdrop will be different.

Related:

   Obama announces compromise on extending tax cuts

   The deficit commission: close, but no deal

   Taxes made too simple

-- Jon Healey

Credit: Jewel Samad / AFP/Getty Images

 

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