A Bad Deal All Around

Sometimes compromise means taking the best from both sides of an issue, creating a consensus that leads the way forward.

That’s not what happened with the recent tax deal put together between the White House and the Republican leadership, however. In that case, the worst of both sides was adopted. The deal panders to the short term interests of the principals, while creating the conditions that will lead to more long term pain further down the road.

The Republicans campaigned on the twin themes of rolling back ObamaCare and enforcing fiscal discipline. The White House wanted to raise taxes to combat the deficit spending they created. So, to compromise, let’s do neither of those things.

The White House agrees not to raise anyone’s taxes. In exchange, the Republicans will support extending unemployment benefits for another 13 months, along with two more years of not applying social security taxes to the first $6600 of earned income. Oh yes, we’re continuing heightened payouts on the earned income credit as well.

The net effect of this deal is that government spending will exceed revenues by almost a trillion dollars next year and the year after. We will continue to provide a reverse incentive to find work, allowing people over two years to stay on the dole. The long term sustainability of the social security program is made worse, because we are starving the program of revenues from a vast cross section of the employed.

This is the reverse of leadership. This is kicking the problem of fiscal deficits down the road two years, while entrenching an entitlement mentality ever more firmly into a large section of the populace.

In every game of musical chairs, eventually the music stops. In this game of political musical chairs, what scares me is that by the time the music stops, we’ll find that all of the chairs have been taken away, and we’ll all fall down.