AS it became clear last week that Congress would pass the tax-cut deal he made with Republicans, President Obama said it “proves that both parties can in fact work together to grow our economy and look out for the American people.” It proves no such thing, the New York Times said. Obama himself described the talks that led to the $858 billion deal as a hostage negotiation. The Bush-era “middle class” tax cuts were extended for two years, along with other tax cuts that both sides wanted; the cost is high – $485 billion – but the breaks will support consumer spending while the economy is weak. Obama knows, however, that significant parts of the deal – especially the two-year, $139 billion extension of the high-end Bush-era tax cuts and the generous new estate tax provisions for multimillionaires and billionaires – will generate relatively little new growth. And because excessive tax cuts worsen the deficit, they actually threaten Americans by creating pressure to cut spending on other programs that actually are needed. In exchange for high-end tax breaks, Obama won a 13-month extension of federal jobless benefits, a modest one-year cut in payroll taxes and other temporary measures for businesses and low-income families. All other things being equal, those measures could help to raise economic growth by as much as a percentage point. All other things, however, will not remain equal. New stimulus spending is undermined if it is offset by cuts in existing spending – and, in the next Congress, Republicans will clamor for immediate budget cuts. Senator Mitch McConnell, the Republican minority leader, praised the tax-cut deal last week, precisely because he believes it will begin to force spending cuts. John Boehner, the incoming House speaker, has called for a spending level in 2011 that is more than $100 billion lower than President Obama wanted, though he has not said which programs he would cut to achieve those savings. __
