Sunday, January 6, 2013

Post Mortem on the Tax Deal

After nearly two months of needless skirmishing the Congress and President Obama finally agreed on a tax compromise that could have been done at the outset. The final accord was pretty much along the lines of my November 7 post with called for tax increases for families making over $400,000 a year($450,000 enacted), a 20% dividend tax rate (enacted), elimination of all deductions save for charitable contributions for those earning over one million dollar a year (gradual phase out of exemptions and deductions for families making over $300,000 a year enacted) and a top rate of 37.5% (39.6% enacted). Why it took so long is a tribute to the dysfunction in the Capitol.

Of course nothing was done to solve the real fiscal issue facing our country which is runaway entitlement spending. The fundamentalists in the Democratic Party held the line here even unwilling to go along with a modest change in the indexing formula for social security. Just remember that that the Democratic Party's lack of interest in entitlement reform does not mean that entitlement reform is not interested in them. It will come and the longer we wait the more severe it will be.

Meantime I would note that there were a few adults in the room. Credit for the passage of the compromise should go to the much maligned House Speaker John Boehner, Senate Republican Leader Mitch McConnell, Vice President Joe Biden, and as much as I hate to admit it, House Minority Leader Nancy Pelosi. The cry babies in the room were House Republican Leader Eric Cantor and his acolytes who almost torpedoed the final deal and thereby prevented the Republican for taking credit for at least common sense partial compromise. Simply put, Cantor, doesn't know how to say "Yes". On Democratic side the cry baby was Sentate Majority Leader Harry Reid who simply refused to do what senators do, cut a deal.