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Obama’s Tax Cut Compromise: Masterful Politics, Or A Fatal Cave-In?

The political knives are already coming out over the tax-cut compromise that President Obama struck with Senate Republicans last night, and it’s going to be awhile before we can really know what the consequences of this are going to be. Within hours after the President’s announcement, for example, Congressional Democrats were already attacking the White House for not fighting the GOP harder:

Resentments between President Barack Obama and congressional Democrats that began simmering even before their midterm disaster are nearing the boiling point on Capitol Hill, as liberals make clear that Obama’s efforts to strike a lame-duck deal with Republicans will come at a cost: open and on-the-record taunting about whether the president is a patsy.

“This is the president’s Gettysburg,” Rep. Jim McDermott, a leading progressive and a subcommittee chairman on the tax-writing Ways and Means Committee, told POLITICO Monday. Referring to Obama’s choice about whether to compromise or stand firm against Republicans on the question of higher taxes for the wealthy, the Washington Democrat said: “He’s going to have to decide whether he’s going to withstand Pickett’s Charge … I worry.”

(…)

Outspoken Democrat Anthony Weiner of New York compared it to “punting on 3rd down — it seems the president is not seeing the value of being on [the] offense.”

“You can’t let Republicans win on this. There’s no more central campaign promise made by President Obama than to repeal the Bush tax cuts for the wealthy, and he needs to be willing to fight on this,” said Adam Green, co-founder of the Progressive Change Campaign Committee, which on Monday circulated quotations from some of Obama’s 2008 campaign organizers who are threatening to pull their support in 2012 over the tax cut.

The Obama Administration, meanwhile, is saying that they wanted a fight but the same House Democrats now complaining didn’t back them up:

“We wanted a fight, the House didn’t throw a punch,” a senior White House official tells ABC News, pointing out that for months before the 2010 midterm elections, President Obama was making the case against the Bush tax cuts for wealthier Americans. “The House wouldn’t vote before the Senate, and the Senate was afraid they’d lose a vote on it.”

“It was like the Jets versus Sharks except there weren’t any Jets,” the official said. “Senator Schumer says he wants a fight? He couldn’t hold his caucus together.”

“This isn’t a debate in a lab somewhere,” the official continued. “People’s taxes were going to go up, and then we were going to have a Senate with a slimmer margin and House under Republican control.”

The problem with this unnamed officials argument is that there’s been no evidence up until now that the White House really was willing to put up any kind of a fight. Since the day they became law, everyone has known that the Bush tax cuts were going to expire on December 31st of this year. From the beginning, the Democratic position has been that they should be allowed to expire across the board, and Obama campaigned on that in 2008. When it became clear that he was taking power in the middle of a massive recession, President Obama heard from numerous quarters that he should consider at least extending the tax cuts for the middle class. Nothing was done in 2009, though, and nothing was done in the months before the election when the Democratic position had largely shifted to ‘no extension for anyone making more than $ 250,000 per year.’ Instead of voting on it before the election, though, the White House and the Democrats in Congress punted which I noted at the time was a mistake on their part:

It seems to me that the smart political move for Democrats would’ve been to put their tax cut extension up for a vote and force the GOP to go on record prior to the election. The fact that they didn’t indicates one of two things. Either they are far more politically inept than they’ve given any indication of being to date. Or, they don’t have enough control over their own caucus at this point to guarantee they their own tax package would pass. If you’re a Democrat, neither one is good news.

Politically, this plays right into Republican hands. They’ve got another issue for the elections, and it ties nicely into the economic issues that will be the primary focus of the last five weeks of campaigning. It also means that, in one form or another, the Bush tax cuts will be extended. The only question is whether it will happen in a lame duck session, or after the 112th Congress convenes in January 2011.

Now that we know the answer to that question, people are starting to ask what this means for the next two years of the Obama Presidency. Katrina vanden Heuvel speculates today that Barack Obama is on the way to a failed Presidency:

This is political self-immolation. Blue-collar workers abandoned Democrats in large numbers in the fall; wait until they learn what the trade deal means for them. Seniors went south, probably because of Republican lies about cuts in Medicare; wait until anyone over 40 who’s lost their savings hears about Alan Simpson’s plan to take it to the “greedy geezers.” The $60 billion each year in Bush tax cuts for the richest Americans could pay for universal preschool for America’s children, or tuition and board for half of America’s college students.

The stakes are much higher than the distant election. The president has suggested unconvincingly that he’d prefer to be a successful one-term president than a two-term president who didn’t get anything done. But there are other alternatives. If the president continues on his current course, we’re looking at a failed one-term presidency that the nation cannot afford.

Forget about electoral mandates or campaign promises. This president has a historic mandate. Just as Abraham Lincoln had to lead the nation from slavery and Franklin Roosevelt from the Depression, this president must lead the nation from the calamitous failures of three decades of conservative dominance. This requires beginning to reverse the perverse tax policies that have contributed to gilded-age inequality and starved the government of resources needed for vital investments. This demands correcting destabilizing global imbalances, laying a new foundation for reviving American manufacturing and shackling financial speculation. It means ensuring the United States leads rather than lags in the green industrial revolution. And it requires unwinding the self-destructive military adventures abroad. The president must strengthen America’s basic social contract in a global economy, not weaken it.

Vanden Heuvel is the editor of The Nation and, of course, has a built-in bias toward the belief that the election of Barack Obama was some sort of massive endorsement of progressive ideas and that Barack Obama is as committed to those ideas as she apparently is. One would have thought that the results of the mid-term election would have disabused her of the first notion, and that the last 23 months would have disabused her of the second. Nonetheless, her reaction to the tax deal seems to be fairly representative of progressive opinion today.

Not everyone on the left agrees, of course. Ezra Klein seems to think this is a fairly good deal under the circumstances and The Washington Post reports this morning that this is part of a broader White House strategy of bipartisanship:

Although his liberal supporters are furious about the decision, President Obama’s willingness to extend all of the George W. Bush-era tax cuts is part of what White House officials say is a deliberate strategy: to demonstrate his ability to compromise with Republicans and portray the president as the last reasonable man in a sharply partisan Washington.

The move is based on a political calculation, drawn from his party’s midterm defeat, that places a premium on winning back independent voters.

The strategy emerged from hours of post-election meetings among senior administration officials who, after poring over returns, exit polls and midterm history, have determined that the loss of independent voters who supported Democrats in 2008 cost the party dozens of races this year. That conclusion places Obama at odds with many liberal Democrats, who say the midterm losses were the result in part of a political base dispirited by the president’s penchant for compromise.

Faced with unified GOP opposition, Obama didn’t get what he really wanted: the end of Bush tax cuts on household income of more than $250,000 and continuation of the rest.

Instead, he went along with emboldened Republicans to extend even the top-tier cuts for two years in exchange for unemployment insurance and other measures intended to boost the economy.

In doing so, Obama is trying to make the best of a bad situation. Administration officials now say that restoring the president’s image as a post-partisan leader is more important for the next two years of his term and for his reelection effort.

Will it work? Only time will tell, of course, but I mostly agree with Andrew Malcom that the  President’s handling of this tax cut debate may end up being much more beneficial than many people are thinking at the moment:

It won’t be a tectonic shock to Obama’s key political advisor David Axelrod that such revolting talk from the left side of the left-handed president may actually help him in the eyes of the broader American public. Lo these 23 months of failed policies, many had come to see Obama as a captive of that constantly complaining crowd. Same applies if someone mounts a hopeless primary challenge from over there.

To the extent that dealing with Republican suits for tax breaks that benefit all Americans makes Obama appear his own man for a change, we’d bet it helps in future job approval ratings; until now, they’ve been far stronger on foreign affairs than domestic chores.

(…)

The possibility is by “caving” on the Republicans’ coveted total tax cut extensions for everyone, Obama may well have ensured his own re-election.

It could be the start of the political rehab showing that this aloof Harvard fellow who let Congress write the economic stimulus legislation that didn’t stimulate, can get into the huddle and call the plays like a leader, not a king viewing from up there in the royal box. And it only took Obama a month after his midterm losses.

There’s one final point, though, and it argues in favor of those who say that President Obama has made a mistake in entering into this deal. Thanks to the two-year extension of the tax cuts that the parties have agreed on, we are now guaranteed that extension of the “Bush Tax Cuts,” which at that point would be more than a decade old, will be an issue in the 2012 Presidential Election. As Nate Silver points out, that would seem to play in favor of the GOP:

Suppose that the economy is showing relatively robust signs of recovery by 2012: not necessarily spectacular rates of growth (in which case, Mr. Obama’s re-election might be almost a sure thing), but G.D.P. growth on the order of 3 or 3.5 percent, and a reasonably significant reduction in unemployment. (Most economists do think that the deal will have some stimulative effect.)

See, this is proof that lower taxes work, I would argue if I were a Republican.

The stimulus — all that government spending — didn’t work. It just increased unemployment. But keeping taxes low worked, and the economy is finally recovering. So why on earth would we want to raise anyone’s taxes now?

Taxes have traditionally been a good issue for Republicans, and the President may regret handing it to them on a silver platter.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Rick DeMent says:

    While it can’t hurt the jobs outlook it will add to the deficit in a big way. The question is will the GOP try to hang that resultant deficit on the president and will Americans care if the job picture improves. Either the president is getting snookered into extending tax cuts for the rich or the GOP is a willing accomplice in the brier patch of more Keynesian spending.

    You decide

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  2. john personna says:

    Handed them what on a sliver platter?

    Will the Republicans try to run again on “fiscal sanity?”

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  3. steve says:

    If you cut taxes and wait long enough, the economy grows. If you raise taxes and wait long enough, the economy grows. Innovation and productivity matter much more. Trade matters more. Still, deficit spending does seem to have some short term positive effects on growth. Just means we added more to the debt.

    Steve

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  4. john personna says:

    Here is my morning-after thought: This reinforces my cynicism. I haven’t reached Steve Verdon levels of embittered cynicism, but I’m out there.

    This confirms to me that no one is willing to take an integrated approach tax, spending, and the business cycle. It is can-kicking all around.

    And today I pretty much feel we won’t have a real solution until the government faces a real debt crisis. Such a crisis now being more likely.

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  5. john personna says:

    Steve, it is really stupid to say “if you cut taxes” without any reference level.

    You say nothing about what is normal, you say nothing about what is required to cover spending. Nothing.

    You are the perfect Republican.

    If you cut taxes, things get better. It is Cargo Cult thinking. Economics is too complicated, so reduce it to superstition.

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  6. Tano says:

    “her reaction to the tax deal seems to be fairly representative of progressive opinion today.”

    Look Doug, you can’t take these statements at face value. Everyone has their ax to grind – that is what these people do – they advocate for a living. There is zero incentive, on a day like today, to render some objective analysis of what has transpired. Their job is to erect a frame around what has happened that may serve, in some way, to advance their underlying arguments.

    What possible benefit would it be to progressives to stand up today and praise this agreement? It is not a question of whether the agreement deserves praise or not – its all about where we go from here. It is massively in the interests of progressives to act like Obama has been snookered – to rally the energies out there, to argue that the GOP has gotten theirs, now going forward the left needs to get something back.

    You seem to be looking at how people frame these things as if they were sincere reactions to events, rather than strategic postures and positions.

    Malcolm’s rhetoric, in the piece you quote, is eye-rollingly dumb on so many levels, but his basic thrust is correct – Obama has handled this negotiation well, he is almost certain to get higher approvals as a result, and having the left act loud and upset on his flank is both good for him and good for the left.

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  7. Steve Plunk says:

    This deal is something but it’s not everything. The current rates will hold and catastrophe avoided but really not a lot of progress toward anything good.

    The payroll tax holiday is weak and does nothing for small business who were the original targets for the holiday. The employer portion is substantial burden and a holiday would have stimulated hiring and given business a signal that Obama has declared a truce.

    Barak Obama is not his way to a failed presidency, he’s there. He’s been broken. No ideas and no fight left in him. It’s his fault since his previous ideas have been failures and that will take the wind out of your sails.

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  8. john personna says:

    To me Tano, it is “eye-rollingly dumb” that a Republican would want to own this thing, as their victory. Close to $1T added to the debt. They had to make Obama “fold” to make it happen.

    Woo hoo, aren’t they proud.

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  9. john personna says:

    “Barak Obama is not his way to a failed presidency, he’s there. He’s been broken. No ideas and no fight left in him. It’s his fault since his previous ideas have been failures and that will take the wind out of your sails.”

    Sorry Steve, Obama “folded.”

    This is the Republican win, remember?

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  10. Tano says:

    “it is “eye-rollingly dumb” that a Republican would want to own this thing, as their victory. ”

    Yeah, I know. Go figga…a year’s worth of heated rhetoric about Obama causing us to drown in debt, and then they push something like this.
    The crazy thing about it though is that it is working for them….

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  11. ponce says:

    “Katrina vanden Heuvel speculates today that Barack Obama is on the way to a failed Presidency:”

    /eyeroll

    Meanwhile,

    Back on planet Earth, Obama’s poll number remain rock solid and wingnut bloggers try any squid ink they can come up with to avoid talking about how the Republicans have screwed the poor Tea Party suckers who trusted them…

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  12. JKB says:

    The $60 billion each year in Bush tax cuts for the richest Americans could pay for universal preschool for America’s children, or tuition and board for half of America’s college students.

    So which was it? Had this tax increase been permitted to go into effect, would the proceeds have been used to pay down the deficit or for new unsustainable programs? I hear lots of talk about how not letting this tax increase proceed will increase the debt but in the next breath there is a lot of talk about new programs on which to spend the proceeds.

    Now this is typical of children, Lefties and government bureaucrats, when they want some cash they promise to pay their debts but when they get it they blow it all on a party leaving their debt in worse shape.

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  13. Tlaloc says:

    “One would have thought that the results of the mid-term election would have disabused her of the first notion”

    I wish we could see what would have happened had obama actually followed through on his campaign promises such that we had enacted EFCA, DADT repeal, real health reform, and so on. I believe that had that happened the midterms would have turned out very differently. The right was super engaged anyway it was the total apathy of the left and the breaking of the moderates to the right that made it a rout. Had he actually fought for progressive ideals the right would have been the same but the left would have been right there fighting them. Even if the moderates had hated the agenda and broken even more for the right it wouldn’t have been as bad an election for dems (by a LONG ways).

    But obama is determined to punish his friend and reward his enemies (and yes they really have proven to be his enemies). Idiot.

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  14. Zelsdorf Ragshaft III says:

    Katrina is left of Lenin. When did government gain the right to my money? They tax, which they have the power to do, but when did they get the power to spend my money before I earn it? Some of you here believe government should take responsibility for those things which free men take upon themselves. There is neither honor nor honesty in the left.

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  15. john personna says:

    Zelsdorf, do you have a guess at how long humans have been taxing each other?

    The keeping of accounts was the main purpose for developing a system of writing. The earliest cuneiform samples of Mesopotamia circa 2500 BC describe the relevant poll tax and the types of tolls and fees that merchants had to pay when transporting goods from one region to another. The law codes of Hammurabi, made famous in the Old Testament, deal with the penalties for smuggling to avoid paying tax as well as the punishments of citizens trying to avoid the obligatory government service …

    http://www.suite101.com/content/the-history-of-taxation-a225492

    So to answer your question, about 3,000 years ago.

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  16. anjin-san says:

    Plunk… still waiting for you to prove your claim Obama admin explicitly said it is anti-business.

    Or are you just going to run away and hide?

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  17. Nightrider says:

    So one the one hand the lefties complain this tax cut adds to the debt, and then on the other they say what new programs the money could have been used for. It is all very nice of them to be so possessive of other people’s money. I think Obama wins this hand against them because most Obama voters don’t view “taxing the rich” as an inherent good in itself that outweighs the importance of politicians behaving like adults instead of children. (Although in this case I mean adults who charge too much on their credit cards). The deal may be bad policy because it increases the debt, but it is not a bad deal simply because wealthy people get to keep more of their own money. When the lefties paint it as they have, they lose.

    The fact that the articles above talk about Gettysburg and football shows that Republican politicians aren’t the only ones who care more about the good of their party than the good of their country.

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  18. floyd says:

    “”There’s no more central campaign promise made by President Obama than to repeal the Bush tax cuts for the wealthy””
    “”””””””””””””””””””””””””””””””””
    How about this one … “And I can make a firm pledge: Under my plan, no family making less than $250,000 will see their taxes increase — not your income taxes, not your payroll taxes, not your capital gains taxes, not any of your taxes.”
    – Dover, N.H.

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  19. ponce says:

    “How about this one … ”

    Indeed, the shrill fringe-right seem to ignore that the Social Security tax cut went to the people, not corporations.

    It’s the Republicans who shafted their base with this deal, not Obama.

    The wingnut smoke screen being put out can’t hide that for long.

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  20. sam says:

    As I said in the other thread, the more the left and the right beat up on him, the more independents gravitate to him.

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  21. sam says:

    See, this is proof that lower taxes work, I would argue if I were a Republican.

    The stimulus — all that government spending — didn’t work. It just increased unemployment.

    Shouldn’t the hypothetical Republican, in the interests of honesty (a stretch, that) have to say,

    “The stimulus, or two-thirds of it, anyway, not the one-third that was tax cuts, because we know tax cuts always and everywhere work because this is written into the very fabric of the universe…”

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  22. ponce says:

    “the more the left and the right beat up on him…”

    Matt Yglesias:

    “…the progressive wonk consensus seems to be that the tax cut deal is . . . not as bad as people feared it would be based on what was happening the previous week.”

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  23. floyd says:

    Ponce:
    PSHAW!

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  24. Pete says:

    ponce, if Yglesias thinks this was not a bad deal, then conservatives should be scared s–tless.

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  25. floyd says:

    Pete;
    ocialis?

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  26. [...] tax plan compromise has been dubbed a fatal cave-in by some, Obama’s Gettysburg by others. And given the actions by Democratic members of the House [...]

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