Obama Takes Liberal Heat for His Tax-Cut Compromise

President Obama has reached a tax-cut compromise with Republicans, but it's left him open to attack from Democrats.
President Obama has reached a tax-cut compromise with Republicans, but it's left him open to attack from Democrats.

President Barack Obama unveiled his compromise to extend the Bush-era tax cuts and renew unemployment benefits Monday evening, calling it an "essential step on the road to recovery." But he's already coming under fire from his own liberal supporters for giving the Republicans everything they wanted without winning major concessions.

"It's really kind of pathetic that he was willing to give up so much and get so little in return," says Dean Baker, co-director of the liberal Center for Economic and Policy Research. "[Obama acts] like the president of the United States is the least powerful person in the county." Tax cuts for the wealthy are just about the worst way to put more money into the economy, Baker adds. "There are many more productive uses of that money."

Obama agreed to Republicans' demands to extend the Bush tax cuts for all taxpayers, including those making above $250,000, for two years. In a surprise concession, he also agreed to accept the Republican estate tax proposal, which levies a 35% tax on the inheritance of estates worth more than $5 million. Obama had been calling for a 45% tax on estates worth more than $3.5 million. The estate tax was repealed for this year, but was scheduled to jump back up to 2001 levels of 55% on estates worth $1 million and more starting Jan. 1.

The compromise plan also would reduce the 6.2% Social Security payroll tax by 2% for one year, which could give middle-income workers an additional $1,000 in take-home pay, and leaves the capital-gains tax untouched at 15%.

Unemployment Benefits Extended


In exchange, Obama won GOP agreement for a 13-month extension of unemployment benefits for as many as 2 million jobless Americans. The benefits are due to start expiring at the end of this month. "We cannot play politics," Obama said.

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But while the unemployment benefits were extended for just over a year, the tax benefits for the wealthy were left in place for two years.

Bernie Sanders, a left-wing independent in the Senate who caucuses with the Democrats, has vowed to block the compromise.

Alan Viard, a resident scholar at the American Enterprise Institute, a conservative think tank, says he's glad the president decided to extend the cuts for both middle and high-income taxpayers. "We should not give the middle-class tax cuts unconditional priority because the high-income tax cuts are actually more powerful in providing incentives for long-run growth," Viard says.

The Price of Inheritance

The estate-tax compromise also drew mixed reactions. Viard says the 35% tax will still leave "potentially significant savings disincentives in place for those households subject to the estate tax."

Steve Wamhoff, legislative director for the Citizens for Tax Justice, a liberal think tank in Washington, D.C., says that even when the estate tax was set at 45% in 2009, it affected just the top 1% of the country's estates. The 35% proposal "is just a terrible idea," he says.

And Dick Patten, president of the American Family Business Institute, a lobbying group that opposes any estate tax, says the 35% is the best interim solution. 'If our families have 35% of the capital confiscated instead of 55%, that's a step in the right direction," he says.

While Republicans are hailing the deal, it still faces opposition from some Democrats in Congress -- although the GOP majority in the House of Representatives makes it less likely that the compromise could be blocked.

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