PhillyDeals: Mushy middle won on keeping tax cuts

Conservative Republicans and liberal Democrats joined in opposing the tax cuts orchestrated by President Obama and Sen. Mitch McConnell (R., Ky.), but those groups were outvoted by the mushy middle from both parties in the House of Representatives last week.

With votes from a couple of dozen Democrats who won't be coming back to Capitol Hill offices except in future careers as private lobbyists, Obama quickly signed the "Lame Duck Act for Financial Stability" or LAFFS, as Guy LaBas, a Janney Montgomery Scott L.L.C. bond strategist, called it.

The extension of the George W. Bush-era personal and business tax cuts, with a few big changes, is supposed to pump more than $800 billion into taxpayers' pockets, almost as much as the controversial Obama tax-cut-and-spending stimulus of two years ago.

"The winner is clearly the U.S. economy," as lower taxes help "jump-start confidence, and therefore hiring," Janney managing director Alan Schankel told clients in a report. Poor consumers, who got a payroll tax cut, are most likely to spend more than they would if the cuts had expired, he added.

"The losers are proponents of fiscal conservatism," since tax cuts prove that politicians' "claims of budget cutting aren't translating into real action," Schankel added.

The tax cuts were a repudiation of Obama's own deficit-busters commission, which had just gotten done recommending a series of tax increases and Social Security and Medicare eligibility cuts, geared largely to the rich, but also raising the retirement age to 69.

Nick Crocetti, a tax director at national accounting firm CBIZ MHM L.L.C., of Philadelphia, read the commission's detailed report. It made him sleepy, but he was impressed: "They attacked some sacred cows. They took a multiple-step approach."

While raising taxes to cut the U.S. debt and stabilize prices and the dollar, Crocetti says, the commission's plan leveled benefits more than it cut them: "People at the very low end would get a little bit more, people at the top end would come down a little."

But the retirement-age increase helped make the report deeply unpopular among people who might have supported other recommendations. Social Security defenders insist a small increase in payroll deductions would enable the plan to stay solvent for years.

Instead, Obama agreed to cut Social Security payroll taxes for one year without doing anything to cover the lost income.