Democrats Agree to $3.6 Trillion Tax Cut

This is the headline we should really be seeing after last night's fiscal cliff deal.

As a result of the deal, the bulk of the Bush tax cuts will remain permanently in place, the AMT will be eliminated, and Obama's stimulus tax cuts, mainly aimed at the working poor, will live on for another five years (as well as stimulus tax cuts for business.)

According to the CBO, the final bill will cut taxes by $3.6 trillion compared to current law. Most of that lost revenue is due to extending the Bush tax cuts for households making under $450,000. 

Now, it is certainly imaginable that President Obama and Congressional Democrats will ask for, and get, additional revenues down the line -- particularly as part of comprehensive tax reform that curtails various loopholes. 

But it's a good bet that such future revenue will be relatively in modest in scope and that the big tax cut enacted yesterday will largely live in on.

The budgetary implications of this revenue loss won't be pretty. Either the United States will continue to run huge deficits over the next decade or will we see bigger cuts to domestic spending that any enacted to date. My guess is that we will see a combination of those two scenarios: A big rise in the national debt along with harmful spending cuts. 

Indeed, we don't need to speculate about that outcome: It's already projected in detail in President Obama's 2013 budget, released last year. That budget -- which assumed that taxes would rise on the affluent and no one else -- plans for serious cuts in domestic spending, including pushing education spending below 2005 levels. Yet it also projects that the federal government will incur $6.6 trillion in new debt by 2022. Annual interest payments on the national debt will jump to over $800 billion by 2021. 

So, thanks to sealing in place most of the Bush tax cuts, we're looking toward the worst of both worlds: Lots of new debt and lots of budget cuts, with these cuts invariably hurting needy Americans the most. 

All for what? To allow most Americans to pay the lowest tax burdens in thirty years, according to a recent New York Times analysis. And to enable the United States to remain the least taxed of all the developed nations. 

Congratulations to Ronald Reagan, Grover Norquist, George W. Bush, the Club for Growth, and legions of other conservatives who worked for a generation to permanently cut taxes on the American public and a force a downsizing of government: You guys won.

And President Obama and the Democrats helped you win.