NCPA - National Center for Policy Analysis

The Good, the Bad and the Ugly of the Tax Deal

December 9, 2010

Compared to ideal tax policy, the deal announced this week between congressional Republicans and President Obama is terrible.  But compared to what many expected to happen, the deal is pretty good.  In other words, grading this package depends on your benchmark.  This is why reaction has been all over the map, says Daniel J. Mitchell, a senior fellow at the Cato Institute.

The Good.

  • The good part of the agreement is the avoidance of bad things, sort of the political version of the Hippocratic oath -- do no harm.
  • Tax rates next year are not going to increase.
  • The main provisions of the 2001 and 2003 tax acts are extended for two years -- including the lower tax rates on dividends and capital gains.
  • Another bit of good news is that the death tax will be 35 percent for two years, rather than 55 percent, as would have happened without an agreement.
  • Last but not least, there is a one-year provision allowing businesses to"expense" new investment rather than have it taxed.

The Bad.

  • The burden of government spending is going to increase.
  • Unemployment benefits are extended for 13 months.
  • And there is no effort to reduce spending elsewhere to "pay for" this new budgetary burden.

The Ugly.

  • As happens so often when politicians make decisions, the deal includes all sorts of special-interest provisions.
  • Moreover, the temporary nature of the package is disappointing, and there will be very little economic boost from this deal.

Source: Daniel J. Mitchell, "The Good, the Bad and the Ugly of the Tax Deal,", December 7, 2010.

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