A deal has been made (the House hasn’t signed on yet, so it is not quite a done deal).  Since the tax credits were extended for two years and the unemployment and Social Security tax break only for one, they almost certainly wont be extended a second year (no bargaining chip left), which will likely keep economic growth at a lower level in 2012.

Here is the cost breakdown of the deal

  • $458 billion ($75 billion for > $250K earners) – Two year extension of Bush tax cuts
  • $56 billion – Extended unemployment benefits for 13 months
  • $40 billion – Extension of various individual tax credits for two years
  • ???? – Extension of business tax cuts (e.g., expensing investments) for 2011
  • $120 billion – 2% Reduction in Social Security taxes for one year  (2011)
  • $88 billion – Estate tax exemption of $5 million per person and top rate of 35% for next two years

Since the enactment of the tax cuts in 2001, Congress has made an important discovery. That many special interests are willing to donate a lot of money for and against the continuing of various tax measures. This leads to the perverse incentive for Congress to never make them permanent. By keeping them temporary they guarantee their campaign coffers will remained filled by their respective constituencies.