Obama Tax Deal Debate Is a Classic Beltway Christmas Story

Depending on your viewpoint, the president is Obama Claus or Frosty the Snowman.

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Washington has over the last few weeks played out its very own holiday story. One almost expects MSNBC or Fox News Channel to tout its coverage with a “Very Beltway Christmas” logo.

If you’ve been visiting the North Pole and haven’t followed the news, the not-paid-for tax cuts for the rich vs. not-paid-for unemployment benefits extension debate produced a Christmas miracle. There was room under the National Christmas Tree for both. Hark! The herald pundits have had much to sing about.

Consider the cast of characters. At center stage is the president. Depending on your viewpoint, he’s Obama Claus, who makes a list of who’s naughty and who’s nice, but gives them all presents anyway. Or he’s Frosty the Snowman: very cool, with an unhappy tendency to melt. Or he’s like a certain reindeer guiding the nation through the foggy night of hyperpartisan political dysfunction.  [Check out cartoons on President Obama.]

The Republicans are in their traditional holiday miser role. GOP tax elves have been singing that a recession is not the time to raise any taxes. This is clever messaging, defining populism up with a “we’re all in this together” theme that neatly deflects attention from those doing best by invoking solidarity from the less well-off. And it might have more credibility if any prominent GOPer, since George H. W. Bush (the ghost of tax deals past) 20 years ago, had acknowledged that there was a good time to raise taxes: not during a recession and not during a recovery. During a war? Judging by the last decade, the answer is no. Perhaps raising taxes to fund a “global war” would have been tantamount to letting the terrorists win. [See editorial cartoons about the Republican Party.]

And while the GOP was decking the halls of the wealthy, they were content to let tax cuts for the middle and lower classes slide off the books. Specifically, tax cuts that were part of the stimulus plan were all set to expire at year’s end. And they weren’t part of the Republican tax-extension push (though some are in the deal that the White House cut with Republican leaders this week). So by the Republicans’ own logic—they said that if President Obama wasn’t actively working to extend the Bush tax cuts, then he was actively working to raise taxes—the GOP has been actively working to raise taxes on middle- and working-class Americans. [Read 10 things you didn’t know about the Bush tax cuts.]

Of course, GOP orthodoxy holds that cutting taxes for the rich is of paramount importance because they will then distribute wealth to the rest of the economy. It’s like suggesting that Santa gives the best toys to wealthy children on the theory that they’ll pass some of their other toys on to the poorer children.

But what Obama understands, and what is at the crux of the budget deal, is that if the aim is to actually help the economy, tax cuts and government spending are best aimed at the middle, not the upper, echelons. “Increases in disposable income are likely to boost purchases more for lower-income than for higher-income households,” the nonpartisan Congressional Budget Office noted last month. Bob Cratchit is more likely to spend the extra money, in other words, than Ebenezer Scrooge. Unemployment benefits, especially, “help drive the economy because the unemployed tend to spend every dollar they get, pumping cash into businesses,” the Associated Press reported this month in an article headlined “End of unemployment benefits would hurt the economy.”

The CBO estimated in January that for every dollar spent on increasing aid to the unemployed, as much as $1.90 more is added to the economy. This is easily the best return on investment among 11 economic-growth policies the budgeteers examined. The best case for reducing income taxes, by contrast, was a 40-cent return on the taxpayer’s dollar.

But when it comes to unemployment benefits, Republicans take on a Grinchian mien. Suddenly, ’tis the season to fret about the nation’s fiscal health. Perhaps it’s because the tax brackets of the unemployed are, like the Grinch’s heart, two sizes too small. Or maybe it’s just a question of scale. The $60 billion cost of extending unemployment benefits is far more manageable than the nearly $4 trillion price tag for making the Bush tax cuts permanent. The Republican position is like dickering over whether a specific ornament clashes with the decor while trying to squeeze a 30-foot Christmas tree into a 10-foot-high living room. [See a roundup of political cartoons on the economy.]