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The Bush Tax Cut Compromise: A Good Deal or Not?

President Barack Obama made a controversial compromise recently when the U.S. House of Representatives passed a bill that extends the Bush tax cuts as well as unemployment benefits.

The $858 million deal will give 155 million Americans the Bush-era tax cuts until 2012 but also includes billions more in spending that will be paid for with borrowed money, according to the Christian Science Monitor.

Two free-market budget experts give their thoughts on the deal.

Tad DeHaven,  federal and state budget analyst, Cato Institute

There are no spending cuts. There are no offsets. It increases spending.

In my opinion, this is just typical of Republicans. They fixate on the tax cuts but they ignore the spending side of the ledger. That’s how they operated the past 10 years.

There is no spending cut to offset the increased unemployment spending and the tax cut.  It’s  poor form to call them tax cuts. It’s preventing a tax increase. These rates have been around for nine years now.

The difference has to be made up by issuing more and more debt. This perpetuates that structural imbalance. We should have the tax cuts, but it needs to be at least balanced with matching spending cuts.

I would absolutely vote against it. I’d like to think there is something to be said for people’s taxes going up at the start of the year which might get more support to get a better deal done.

Perhaps a better deal could happen with some type of spending cuts to offset the price of the package.

Anthony Randazzo, director economic research, Reason Foundation

I am uncomfortable with it, but I believe the tax deal passed by the Senate should move forward in the House. I don’t necessarily see an extension of the Bush tax laws as a tax cut. American individuals and businesses have been living with the current rates for nearly a decade, making the end of the Bush-era laws more of a tax hike, rather than the end of a temporary tax relief.

While it may not be possible to balance the budget without some tax hikes, we should not raise taxes without there being some well thought out reasons and debate. Allowing the calendar to dictate a tax hike that isn’t part of an intentional plan to address America’s budget problems is very poor tax policy.

I am sympathetic to those conservatives who are balking at this tax deal because it extends unemployment benefits and adds to the deficit by not matching the tax cuts with spending cuts. And I am sympathetic to the Romney view that a two-year extension will mean business investment still will get held back.

But a tax hike would be substantively worse than the limits of a short-term extension. And at the end of the day, allowing a sweeping tax hike on all Americans—even on “the wealthy”—is a bad idea. At the very least, the numbers show that just raising rates on those making over $200,000 a year could cut as much as $900 billion in savings and consumption out of the economy over the next 10 years. That shouldn’t be allowed to happen.

My hope is that the current tax laws will be kept in place until we can have a healthy discussion on what to do about the national debt and deficit in a comprehensive way. Just because there is a two-year extension doesn’t mean a tax code debate should wait two years. The Reid-Pelosi Congress failed to deal with this comprehensive matter the past four years. Hopefully, the Reid-Boehner Congress won’t see this deal as a way to avoid the conversation, but as a temporary stay of execution until the matter can be sorted out.

I don’t like passing an $800-plus billion tax cut bill that doesn’t have matching spending cuts. But given the political reality facing Congress, an extension of the current tax rates in exchange for a one-year unemployment benefit extension is a fair trade so that Congress has time to pass substantive, positive reform. Whether they will in the next two years is a frustrating debate all its own.