President Barack Obama just secured billions in tax breaks for low- and middle-income workers, an extension of unemployment benefits for millions of people, extensions of tax breaks for college tuition, child tax credits, and incentives for businesses to expand. All of that will inject more money into the economy at a time when it is still fragile and should help create jobs. And for this, he's facing strong opposition from the very group of people who have spent the last two years defending his efforts to stimulate the economy: congressional Democrats. Maryland Rep. Chris Van Hollen insists that House Democrats have not signed off on this bill and will be scrutinizing it carefully. Others are calling it a disgrace.
The reason is the price Mr. Obama paid to secure Republican support for the measure: an extension of the Bush tax cuts for everyone, including the wealthy, for two years, and a temporary reinstatement of the estate tax at a lower level than Democrats would like.
Is it galling that getting help for the unemployed requires tossing billions of dollars at the rich? Yes. Are tax cuts for top earners the most efficient way to stimulate the economy? No. But Republicans had made clear that they would do nothing without first tending to the pocketbooks of the well-to-do. Mr. Obama could have dug in his heels, as many liberals urged, and engaged in a showdown with the GOP. Or he could have done the responsible thing, struck a deal and secured provisions that will have a strong effect on the economy. To his credit, he chose the latter. And to the credit of Republican leaders, once their demands about the Bush tax cuts were met, they agreed to a decent bargain. Congressional Democrats need to swallow their bile and consider the greater good.
And there is substantial good in this package. Unemployment benefits, which are among the most efficient ways to stimulate the economy because they are virtually all spent right away, will be extended for 13 months. That helps some 7 million people whose benefits would have run out, many of them in the middle of the Christmas season. The bargain also includes a payroll tax cut, which benefits all wage earners and will be even more beneficial for some lower- and middle-income families than the Making Work Pay tax cut that was part of the original stimulus bill. Extensions of research and development tax credits and a provision that will allow businesses to deduct 100 percent of certain capital investments should help spur employers, many of whom have built up stockpiles of cash because of their reluctance to hire, to start expanding.
In the wake of November's disappointing labor report — just 39,000 jobs created nationwide and the unemployment rate creeping upward — it was clear to many, including Federal Reserve Chairman Benjamin Bernanke, that the economy needed additional stimulus. And while congressional Democrats seem fixated on decrying this compromise as a sop to the rich, they should instead look at it as Stimulus II. Like the stimulus, it will last two years and cost about $900 billion; only about half of that comes from the extension of the Bush tax cuts, and a fraction of that from the tax cuts for the rich.
The peevishness of congressional Democrats notwithstanding, this agreement between President Obama and congressional Republicans is a good sign for how Washington might operate under divided government. Both Republicans and the president showed that they were more interested in getting something done, even if they vehemently disagreed with some elements of the deal, than sticking to principle and accomplishing nothing. The bargain provides some hope that Republicans' strategy of saying no to everything during the first two years of the Obama presidency is giving way to a recognition that they have a stake in the process and will be held accountable if the government fails to act. If congressional Democrats could come to the same conclusion, these next two years could be productive, indeed.
And they need to be. As necessary as further economic stimulus is now, this deal underscores the importance of tackling the nation's long-term debt problem. All $900 billion of this tax deal will be funded by adding to the national debt. Although the recommendations of the president's debt commission didn't get the supermajority they needed to trigger a congressional vote, the package did get significant support, certainly enough to form the basis for negotiations on the painful choices that will be needed to make sure the nation lives within its means and to shore up crucial programs such as Social Security and Medicare. Now that Washington has done something about the economy's short-term weakness, our leaders need to develop a comprehensive plan to put us on the path toward long-term sustainability. And for that, President Obama and members of both parties in Congress need to be on board.