The big takeaway from the tax deal is that elections have consequences. Anyone who predicted back in November or December of 2008 that two years later, President Obama would be extending the Bush income tax, capital gains, and dividend tax rates for two years while also cutting the payroll tax by two percentage points would probably have been greeted with a lot of skepticism. But the 2010 election turning the House of Representatives over to the Republicans and increasing Republican numbers in the Senate made such a deal possible.
At least two other points are worth mentioning. The first is that whatever lip service both parties pay to deficit reduction, this deal doesn't exactly place a priority on it. I've never bought the idea that tax cuts have to be "paid for," and I'm hopeful that economic growth will reduce the deficit, but even so, this is not a pretty deal from a deficit reduction standpoint.
Second, upper-income folk breathing sighs of relief that they will be spared tax increases should remember that while this deal may leave them off the hook as far as federal tax increases go for 2011 and 2012, the whole fight will happen all over again in 2012. And at that time, it won't just be the Bush tax rates on income, capital gains, and dividends in play, but also the tax increases scheduled to go into effect in 2013 as part of ObamaCare. The Tax Foundation describes those taxes as "an additional 0.9% Medicare Hospital Insurance Tax on earned income exceeding $200,000 for single taxpayers ($250,000 for married couples) and an "Unearned Income Medicare Contribution" of 3.8% on investment income for taxpayers with adjusted gross incomes (AGI) in excess of $200,000 for single filers ($250,000 for married filers)." The effect is to set up the 2012 election as a referendum on taxes. Expect Democratic concern about deficit reduction to return in force at that point. The Republicans are going to need a candidate who can articulate the political, moral, and economic arguments for tax cuts.