Obama Tax Cut Deal - Good Plan or Bad Plan?

President Obama has a tax deal plan in place for a two-year extension of the Bush Tax Cuts. He cut a deal last week with soon-to-be Speaker of the House John Boehner and Senate Minority leader Mitch McConnell to extend the Bush Tax Cuts of 2001 and 2003. The deal would extend all the tax rates that Bush established, including the 35% top rate on all income above $250,000 for the next two years. Without this deal, the Bush tax cuts would have expired and the top rate would go back to 39.6 %, where it was when Bill Clinton was President.

Included in this plan is an extension of unemployment insurance for 13 months, tax credits for renewable energy, and a payroll tax cut for employees. The estate reverts back to 35% on estates above $5 million after it was exempt for 2010. In 2009, the estate tax was 45% on all estates above $3.5 million.

Outgoing Speaker of the House Nancy Pelosi will step down to House Minority Leader on January 5th when the 112th Congress gets sworn in and the GOP becomes the majority. While this tax deal will irritate Progressives and some Tea Partiers for completely different reasons, this just may have saved Obama's Presidency. A $1 trillion-plus National Deficit is not healthy for the American economy because it forces us to borrow more from China. But, Obama escapes the politically untenable position of allowing tax increases, even small ones, to occur on the ever-shrinking middle class. Or the expiration of unemployment benefits with high unemployment. If unemployment remains above 5.0% through January 2012, the GOP House will be on the hook for extending unemployment benefits during an election season. If they do not, they run the risk of losing the House back to Democrats.

This all but ensures a second term for Obama because Progressives surely aren't going to vote for any Republican or Tea Party candidate for President in 2012 since he is going to be the most left-leaning candidate on the ballot. The Republicans figure to run either Sarah Palin, Mitch Romney, or Mike Huckabee against him. None of these Republicans appears to have the ability or widespread popularity to beat him in a national contest. His re-election will also help protect vulnerable Congressional Democrats in 2012.