The Obama Tax Cuts

President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 on Friday preventing the Bush tax cuts from expiring for anyone. Progressives, like Paul Krugman and Huffington Post writers, have derided this compromise. To the liberal base, this Act is, in effect, the equivalent of what Bush’s immigration reform was to his base.

Through a different lens, though, this is Stimulus II, weighing in at a whopping $900 billion. Liberal Democrats were clamoring for a second stimulus, but with the number of Republicans in the Senate, that was never going to happen. Although tax cuts are in no way as stimulative as government spending since people can save the cuts, it will still reduce unemployment and spur GDP growth. Yes, even tax cuts for the rich can stimulate the economy.

Most importantly, though, Obama was able to extend important tax provisions that will help middle-class families the most. This includes the earned income tax credit, tax credit for college, and the child tax credit. Moreover, unemployment insurance was extended for another 13 months. Benefits for the unemployed are particularly stimulative since they are in a dire situation now and must spend. Further, an investment tax credit allows businesses to deduct purchases that are necessary for the business to grow. Ideally, this could help lower unemployment.

Additionally, the payroll tax (one of the most regressive taxes) will be cut by 2%. Adding an additional $140 billion to taxpayers, this will have a more immediate effect than the income tax cuts will. However, when this provision expires next year, Republicans will attempt to brand an extension as a “tax hike.” If it is extended past a year, the fund for Social Security benefits will be harmed. The government will have to look to other means to fund it, or begin to look at reform measures (i.e. means-testing so old, rich people receive less benefits).

Finally, the bill includes various tax incentives for alternative energy. In order to get tax cuts for Paris Hilton, the Republicans also allowed the passage of these significant provisions that will further stimulate the recovery. If the economy is in good shape 2012 because of the Obama tax cuts, then this will bode poorly for the Republican candidate.

Given all these incentives passed, it doesn’t look like much of a win for Republicans anymore. Admittedly, Obama could have dug his heels in more and could have gotten more out of the Republicans. Would that be worth the risk to his image or the American taxpayers, though? On the other hand, addressing Republicans as “hostage-takers” and subsequently implying the White House is helpless to their pursuits doesn’t help the presidential image either.

Politics is about compromise. Obama is not a dictator (despite Tea Party portrayals), and the American political system, by its very nature, is resistant to large transformations. The President definitely deserves some criticism for this Bill, but he also deserves some praise.