Obama Strikes Tax Deal with GOP from the CFR

http://www.cfr.org/about/newsletters/editorial_detail.html?id=2320

U.S. stock futures rose sharply, together with oil, gold, and other commodities as investors reacted positively (WSJ) to a deal to temporarily extend tax cuts to all Americans. President Obama and congressional Republicans agreed to a deal that would extend for two years all the Bush-era income tax breaks set to expire on December 31, continue unemployment benefits for an additional thirteen months, and cut payroll taxes for workers to encourage employers to start hiring.

Obama's willingness to extend all of the George W. Bush-era tax cuts (WashPost) is part of what White House officials say is a deliberate strategy to demonstrate his ability to compromise with Republicans. The president faces strong opposition from Democrats upset over the deal (NPR). Democrats wanted to keep lower rates for middle income earners, while letting cuts expire for households with incomes of more than $250,000.

The president presented the deal (NYT) as "an essential step on the road to recovery. It will stop middle class taxes from going up. It will spur our private sector to create millions of new jobs, and add momentum that our economy badly needs."

Analysis

GOP election gains make it less likely Congress will enact needed deficit cuts and more fiscal stimulus, and the Fed's quantitative easing plan could create new bubbles, says CFR Distinguished Visiting Fellow Peter Orszag.

The presidential commission on reducing the U.S. deficit fell short of the votes needed to advance to Congress, but analysts said it indicated some bipartisan backing for crucial cuts that would address the country's threatening debt picture.

Six scholars from the Brookings Institution weigh the deficit reduction proposals.

Background

Read the final version of the White House's National Commission on Fiscal Responsibility and Reform, co-chaired by Erskine Bowles and Republican Alan Simpson.