Tax compromise boosts markets, along with partisan bickering

Obama offers tax compromise

A proposed compromise with Republicans by the Obama administration trades extending the Bush tax cuts for an unemployment extension. Image: CC blves boy/Flickr

A tax compromise announced by the Obama administration Tuesday features both an extension of Bush tax cuts and a  federal unemployment extension. Wall Street gave the tax compromise a resounding approval, approaching stock-market highs not seen since the brink of the financial crisis. However, politicians on both sides of the isle vowed to do everything in their power to scuttle the deal.

What the tax compromise is all about

The tax compromise outlined by the Obama administration is a proposal that extends the Bush tax cuts for all tax brackets another two years. The Bush tax cuts are scheduled to expire Dec. 31. The federal unemployment extension would last for one additional year. Other parts of the tax compromise include renewing the estate tax at a lower rate, which Congress allowed to lapse in 2010 and that Republicans want to end permanently. Instead of extending the Stimulus Act income tax cut that Republicans wanted, the tax compromise proposed a payroll tax cut that reduces Social Security contributions from 6.2 percent to 4.2 percent.

Markets surge on hint of bipartisanship

The Obama administration tax compromise was given credit by analysts for a stock market surge Tuesday that pushed Wall Street to highs not known since the September 2008 collapse of Lehman Brothers plunged the U.S. into an epic financial crisis. The tax compromise hasn’t yet been approved by Congress, but the certainty it promises infused more confidence in the stock market, which is coming off a strong November. As riskier investments like stocks become more attractive, the price of bonds fell while their yield rose. News of the tax compromise fuels a recent resurgence in U.S. markets that defies the fear in global markets over sovereign debt in Europe.

Politicians leave their blinders on

Despite positive reaction in the real world, extremists in Congress are vowing to contest the tax compromise. Comments from liberal Democrats about the tax compromise ranged from “a moral outrage” to “an absolute disaster.” Bernie Sanders, D-Vt., has vowed to filibuster the legislation. Right wing Republicans groused at the prospect of the Obama administration getting anything it wanted in the deal. Michelle Bachmann, R-Minn., told Fox News the GOP would not support an extension of federal unemployment benefits, even as more than 2 million jobless Americans are set to lose them Dec. 31.

Sources

Christian Science Monitor

Fox News

New York Times

Other recent posts by bryanh