Breaking: Obama Announces Deal on Taxes, Unemployment, Credits and More

by Darwin on December 6, 2010

President Obama announced “framework” details on the deal being ironed out between both parties to satisfy pretty much everyone.  Everyone’s gonna get their tax cuts, the unemployed will be assured of an extension, estate taxes will not revert to the old rates and more.  Here are some details for each provision:

  • Tax Rates -There will be a full 2 year extension across ALL tax brackets.  What this means though, is that there will be an entirely new cliffhanger negotiation again leading into the 2012 election year.  You know what that means, right?  Whoever promises the most wins.
  • Payroll Tax Break – Employees will pay 2% less in payroll taxes – 4.2% instead of the usual 6.2%.  This is often viewed as a highly efficient stimulative method since employees generally spend the small extra amount that shows up in each paycheck which is a better stimulus measure than lump-sum payments like some of the tax breaks we’ve seen in recent years.  Apparently, this break will replace the “Making Work Pay” Credit that had returned $400 to individuals and $800 to couples up through this year.  For most, the 2% payroll tax break will deliver more value to employees.
  • Estate Tax Rates to Come Down – While the estate tax will be reenacted after the 2010 lapse, the cap for no federal estate tax will be pretty high at a $5 Million exemption, then a 35% tax from there.
  • Unemployment Insurance Extension – Benefits will be extended an additional 13 months.  Based on my interpretation, I don’t believe this will extend the 99ers an additional 13 months, but ensure that people in later tiers that didn’t have the additional federal insurance approved will now get up to the 99 weeks others have seen – but more details will surely follow to clarify.
  • And More… Some tax breaks for companies writing off old equipment and other details that will emerge once the vote is finalized in Congress.  But those were the key points.

Undoubtedly, many on the left will criticize Obama for folding and giving “the rich” their tax break, while many on the right will be critical of extending unemployment yet again while questioning when is enough enough?  The price tag on the accord will be well into the hundreds of Billions of dollars, none of it paid for.  True deficit hawks will surely be annoyed by the spending on both sides, just following Bernanke’s comments on 60 Minutes last night and shortly following a failed QE2 Program that saw mortgage rates RISE after its enactment.

Personally, I’d been leaning toward doing nothing and enacting the recommendations from the deficit panel, as opposed to further indebting our children.  But the announcement will likely boost equity prices, precious metals and tank bonds in the coming days.  There’s some short term gain to be had for investors, but at an uncertain cost into the future.

Thoughts?

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{ 3 comments… read them below or add one }

1 ctreit December 7, 2010 at 9:55 am

What a great compromise! Everybody gets to run up the deficit even further. It looks like Obama and the Republicans are off to a good start. Will the real fiscally conservative people please stand up?

[Reply]

Darwin Reply:

@ctreit, 2012 I presume. Once again, it will be he who promises the most wins though. This may have been a nice strategic move to ensure another 4 years.

[Reply]

2 Joe Schmoe December 7, 2010 at 10:49 am

Nobody was crying when Pres. Reagan pushed up the federal deficit into unchartered territory in the 1980s. Why is everybody so freaked now?

[Reply]

3 jim December 7, 2010 at 4:05 pm

Joe, good question. The national debt grew 80% in Reagans first term. Under Obama’s first term it is projected to grow 60-70%. By that comparison its odd people are so up in arms now. Its not like our national debt happened over night. Its been there forever and growing the whole time.

[Reply]

Darwin Reply:

@jim, I actually recall a lot of hootin and hollerin’ over the deficit then too. But seriously? It is completely out of control. And you’re citing current numbers. Look at the projections (even by CBO and Obama’s deficit panel). We’re totally ignoring a train wreck. Bernanke himself just said on 60 minutes that within a few years we won’t even be able to fund anything aside from entitlements. No military, no education, nothing. but entitlements. This doesn’t concern you?

[Reply]

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