The briar patch

As soon as the outlines of a deal between President Obama and Republicans to extend tax rates were announced, jihad was declared by liberal members of Congress and the left-leaning blogs. When the president held a quickly called White House press conference to attempt to counter the furor on the left, the liberal members of the press corps all but called him a “punk” for “caving in” to the Republicans. The liberal fury notwithstanding, there may be method in the president’s perceived madness.

In spite of Democratic claims to the contrary, the $850 billion “stimulus” package enacted on basically a straight party line vote early in Obama’s presidency has been generally perceived to be a bust. It pumped money into government coffers but did little to help the private sector and individual taxpayers, and it hasn’t moved the unemployment rate downward. If the president attempted to even suggest moving another stimulus package, he would be shouted down. The election results on November 2 are a clear indication that voters have had it with big government spending schemes. But a close look at the compromise fashioned between Obama and the Republicans reveals a proposal that is a $900 billion stimulus masquerading in tax rate extension clothing.

If the proposal is enacted by Congress (perhaps a significant “if” considering the banshee screams of liberal Democrats), it would keep hundreds of billions of dollars circulating in the private economy instead of going into government coffers where the odds are it would be spent instead of paying down the deficit. The personal income tax rates of all taxpayers would remain at current levels. The capital gains and dividend tax rates would also remain the same—a reassurance not only to investors but also to seniors whose retirement portfolios would be affected by any increase. The alternative minimum tax “patch” would be in place which would prevent a significant rise in the income taxes paid by 21 million Americans. The plan also calls for a one-year reduction of two percent in the Social Security payroll tax. This could result in a tax savings of up to $4400 for working couples. The compromise also calls for the extension of tax credits for children and college tuition. It also would allow businesses to take a 100 percent credit next year for investments in plant, equipment and technology, and it would extend the credit for hiring the unemployed.

The compromise between President Obama and the GOP can legitimately be criticized by various factions. But it is a better stimulus vehicle by far than the 2009 $850 billion boondoggle. The U.S. economy continues to languish. Removing more money from the private sector will further suppress economic growth. Short-term approaches to put more money directly into the pockets of consumers will definitely stimulate the economy more than pumping more money into governments. After the painful economic lessons of the past two years, perhaps the president is starting to understand that stark reality.

The Democratic diehards in Congress who are furious at Obama portray him as a weakling who folded early and was “rolled” by the Republicans. Perhaps. Perhaps not. The president is painfully aware that the economy needs stimulation. He is equally aware of the fact that “stimulus” is now a dirty word. The deal with the Republicans may well be a crafty plea by the president not to be thrown into the briar patch of a massive stimulus artfully designed as a tax rate extension. Among the briars, he may be smiling and hoping that this stimulus geared more to the private sector may be his best hope of being re-elected in 2012.