Breakthrough Or Surrender ?

The news media is trumpeting a possible "breakthrough" in negotiations over avoiding the "fiscal cliff" -- at least in the tax part of the things that will automatically happen in this new year if nothing is done. The talks between Majority Leader Reid and Minority Leader McConnell broke down, probably because Reid understood that the Democrats have the advantage in this fight. So McConnell decided to go over Reid's head and negotiate directly with the White House through Vice-President Biden -- and it is between McConnell and Biden/Obama that the much ballyhooed breakthrough was made. What does this agreement include? As I write this, the details are still being hammered out, but as far as we can tell it would include the following:

* Capital gains taxes would be raised from 15% to 20%.
* Estate taxes would be raised to about 40%, but would only apply to estates above $5 million.
* Unemployment insurance would be extended for about 2 million Americans.
* The Bush tax cuts would be made permanent for those making under $400,000 ($450,000 for a married couple).
* Sequestration cuts will be delayed for two months.

I have no real problem with the estate tax agreement. It probably should be on estates a little lower than $5 million, but the president did not campaign on this issue and I think it's an agreement most people can accept.

It is still wrong to let those people who make their money through investments pay a smaller tax than people who actually work for their income, but the 20% level would mean the rich are paying a little bit more on their income than before (and the issue could be taken up again in the future -- maybe when income tax reform is debated). There is no justifiable reason for not taxing all kinds of income at the same rate.

Extending the unemployment payments to 2 million out of work Americans is needed. Stopping these payments would throw many of them (if not most of them) into poverty -- and force them to access other government programs (like Food Stamps, housing assistance, etc.). And this is at a time when drastic cuts are being made to those other programs (through the across the board cuts that will take place automatically -- and are not a part of this deal, except for a two-month delay).

But the real deal-breaker is making the Bush tax cuts permanent for everyone making less than $450,000 a year. President Obama campaigned on a promise to only make those cuts permanent for those making less than $250,000 a year, and poll after poll showed that a significant majority of the American public supported that level of taxation. This put the Democrats in a strong position, and the Republicans would have had to eventually give in or anger 98% of the voters. And the longer they stalled, the weaker the Republican position would have become.

Unnecessarily raising the tax cut level to $450,000 looks like a surrender to me by Obama and Biden. The agreement would raise far less in needed revenues, while doing nothing about the budget cuts that ordinary Americans would have to bear. In other words, the Republicans have gotten tax breaks for more of the rich and the burden of that will be borne by hurting Americans. In addition, the deal does not solve the debt ceiling problem which must be dealt with in the next couple of months -- and that will allow the Republicans to hold our government hostage to demand even more budget cuts that hurt ordinary Americans (and maybe even cuts to Social Security and Medicare benefits).

This is a bad deal for ordinary Americans, and frankly, it looks like the president and vice-president let the Republican talk of a fiscal cliff disaster scare them into surrendering far too much. This deal makes the Democrats look very weak and the Republicans look much stronger than they should after the thumping they recently received in the election. This will give Republicans the courage to continue their fight for more cuts to programs ordinary Americans need (and possibly even Social Security and Medicare). After all, the Democrats backed down this time (as they have many times in the last four years). Why wouldn't Republicans (and Americans in general) expect the Democrats to fold again when it comes to the debt ceiling?

UPDATE -- The United States Senate voted 89 to 8 to approve the tax compromise. I can understand why the Republicans voted for it, because they were able to get far more than they expected to get (being in an unpopular and disadvantageous position). But I am very disappointed by the Democrats, especially those who call themselves liberals. I guess their newly found backbones were just too uncomfortable or unfamiliar, so they put them back in the closet. If these men and women can't play a little political hardball in a position like this when they had the people on their side, then when will they be able to do so?