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Ain't nobody happy

It's difficult to know what to make of the tax-policy deal struck (click link for key highlights) between President Obama and congressional leaders (including Republicans this time around). As with the report issued last week by the National Commission on Fiscal Responsibility and Reform, everyone is finding something to dislike.

Critics on the left think the president has betrayed their ideals by not standing firm for an income-tax hike for high earners (and many small-businesses).

"Some in my caucus still have concerns," Senate Majority Leader Harry Reid (D-Nev.) said, quoted by the New York Times. Vermont Sen. Bernie Sanders (a Socialist independent who caucuses with the Democrats) is threatening a filibuster.

On the House side, Bloomberg quotes House Democratic Caucus Chairman John Larson (Conn.) as saying it will be "very difficult" to sell the tax deal to House Democrats.

Meanwhile, critics on the right, such as conservative blogger and radio talk show host Hugh Hewitt, think Republicans could have held out for a much better deal, including one that would not have brought back the so-called death tax (i.e., the now non-existent federal estate tax).

[A]ny conservative who votes for the deal is voting to resurrect the death tax. The death tax is at zero right now, driven there by a decade of step downs and a moral argument, widely and deeply held, that this vampire tax is wrong on many levels. Any Republican who votes for the deal is voting to undo that demise.

Any future primary opponent will be sure to campaign on the fact that the incumbent voted to resurrect the death tax — a powerful club with which to beat a senator facing a Tea Party challenge, and some of the redistricted old bulls of the House as well.

The editorial board of the Wall Street Journal, however, largely sides with Republican leaders who argue that the good in the deal outweighs the bad.

Should Republicans have held out for more, since they would return in January with a stronger position? We wish they had won a longer extension [of current tax rates], kicking the next possible tax hike further into the future.... Yet this deal is superior to anything we could have imagined six months ago.

Critics from the right and the left are united on one thing: a belief that this tax deal is not a fait accompli. The title of the NY Times article quoted above is "Obama Defends Tax Deal, but His Party Stays Hostile." The title of Hugh Hewitt's post is "Why Conservative Support for the Deal May Unravel."

So much for the politics. Barron's editor-in-chief Randall Forsyth notes that the announced deal is roiling the bond market.

Yields soared in the wake of the plan that will add upwards of $900 billion to the federal deficit, sending bond prices tumbling, especially in the municipal market....

The potential for the Treasury to sell more securities to fund the larger deficit, plus the likelihood that the Fed could buy fewer notes in [a] more robustly growing economy sent yields soaring. The benchmark 10-year Treasury's yield jumped 24 basis points (hundredths of a percentage point), to 3.17%, a five-month [high]; its price fell nearly two points, or $20 per $1,000 note....

Especially hard hit again was the municipal market, which suffered from an omission from the tax deal — the expected extension of the Build America Bond program, which expires at year-end....

The sharp rise in bond yields potentially could blunt the impact of the fiscal thrust from the tentative bipartisan tax deal.... States and localities, already reeling under budget pressures, hardly need higher borrowing costs.... Only corporations, which already having taken advantage of ultra-low borrowing costs and are flush with cash anyway, would be immune from an uptick in bond yields.

So will the tax deal pass? Tough to say, especially when there is no actual bill yet, just an agreement in principle. When the bill is written, there is likely to be even more "devil in the details."

Update: The Wall Street Journal provides a helpful summary of the deal's major provisions here.

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