Basically, in exchange for temporary extension of all the Bush tax cuts and a capitulation to the conservative Democrat-Republican consensus on the estate tax, President Obama will get 13 months of unemployment benefits, a yearlong pay-roll tax cut, extensions of tax credits in the stimulus, and some business-focused tax breaks. Basically, it's a tax-focused stimulus package -- if Congress votes on it.
This deal showed exactly what kind of priority you need to target to get Republicans to make a legislative deal: Tax cuts for the wealthy bring them to the table every time. Of course, cutting taxes for the wealthy every time legislation has to move isn't a sustainable practice in the long term.
The overriding fact about this deal is that we're unlikely to see any stimulus next year. In fact, we're likely to see budget cuts. The White House's calculation on this is that getting a decent amount of deficit-financed tax cuts out the door now -- in particular, the payroll tax cut -- is the best chance to give some juice to the economy at a time when recovery is flagging.
Is it good for the long-term budget? Oh, heck noes. Despite White House senior officials citing various fiscal reports that called for front-loaded payroll tax cuts as stimulus, those deals came with other spending cuts and tax reform to set us on a long-term path to sustainability. Sans the broccoli, if you will, this is just ice cream. But, just like a kid with the flu, ice cream is what the economy needs right now.
The added bonus with this deal is that it could remove the Republicans' barrier to votes on the DREAM Act and DADT. Should Congress manage to pass one or both of those key Democratic priorities thanks to space created by this deal, then it will likely have been worth the compromise.
That said, the bulk of Democrats on the Hill are not pleased with this, and the deal isn't final till the president signs it. They ran against it, the president ran against it, and they could have conceivably fought this one till the Capitol dome rattled. Obama could have deployed veto threats and gone from there. Of course, as White House officials are happy to point out, Congress could have voted on the bill before the election. I had predicted then that inaction would lead to defeat, so perhaps this punt could be won. To keep this football metaphor going (woo Patriots), the deal gives the Democrats decent field position in 2012, when this fight will begin anew.
-- Tim Fernholz