Let’s make a (poor) deal

The compromise that has emerged in Washington on the George W. Bush-era tax cuts is a Frankensteinian mishmash of good policies and bad ones, united only by their reliance on deficit spending. On the plus side, the deal to renew a variety of tax cuts and extend unemployment benefits for millions of Americans would spur demand and boost the sluggish economy. On the other hand, taxpayers would get little benefit from some of the more expensive parts of the package, and tens of billions of borrowed dollars would be squandered. The best thing about the deal is that it would expire before the next election.

Its details may change, but the compromise struck Monday includes a temporary extension of all the major Bush-era tax cuts, as the GOP has demanded, not just those for households with incomes below $250,000, as President Obama had campaigned for and most congressional Democrats sought. In a concession to Democrats, the deal also renews the extended unemployment benefits that expired Dec. 1, as well as an assortment of targeted tax breaks for businesses and individuals.

There’s no internal logic to such a compromise because the administration and congressional Republicans are driven by sharply different motivations. The president wants Washington to do more to stimulate the economy before it starts trying to pare the deficit; Republicans simply want to stop Washington from taking more money out of the hands of taxpayers. They had also complained about increasing the deficit to pay for unemployment benefits, but they couldn’t make that case with a straight face while retaining tax cuts that will raise the national debt by $4 trillion over the next decade.

With businesses reluctant to expand in a shaky economy, it makes sense for Congress to do what it can to increase demand and promote hiring. Some options, however, are far more efficient than others. Unemployment benefits are at the top of the list, according to the Congressional Budget Office, followed by temporary, targeted tax breaks for businesses that expand. Of the six alternatives examined recently by the CBO, the one delivering the least bang for the buck was extending all the 2001 and 2003 tax cuts.


Given the GOP’s stance, there seemed to be no way to avoid renewing the Bush-era cuts for the wealthiest Americans. At least it won’t be long before lawmakers with a fiscal conscience can try again to end them. With luck, the next deadline will help push Congress to overhaul the tax code in a way that promotes growth and fairness, as outlined recently by the White House’s deficit commission and several other blue-ribbon panels. It’s too bad Congress didn’t take that approach this go-around instead of simply giving both sides what they demanded, regardless of the cost or benefit.