Posts Tagged ‘national debt’

Obama’s Tax Deal: A High Risk, High Reward Play

Wednesday, December 8th, 2010

At a tipping point in his presidency, Barack Obama has embraced a Republican-slanted deal on taxes that has enraged his Democratic allies and emboldened his GOP enemies, a high-risk bet aimed at buying time on the economy while portraying himself as the only grown-up in Washington.

At a time when his recent weak and ineffectual performance increasingly draws comparisons to Jimmy Carter, Obama abandoned a fundamental campaign promise, and a basic premise of Democratic politics, by bowing to GOP demands to extend George Bush’s low tax rates for the richest Americans.

His agreement to continue those rates, for at least two years, is at the core of a compromise he negotiated with Republicans that he argues will help create jobs. The plan also calls for continuing current income tax rates for all other taxpayers and an extension of unemployment insurance benefits,  among other features. .

His play infuriated liberal Democrats in Congress, and, in a surprise move aimed at regaining control of the debate, Obama took to the White House press room Tuesday for a hastily convened news conference. In it, he not only strongly defended his deal as a pragmatic compromise that will help middle class Americans struggling in the sagging economy but also defiantly bashed his own political base, which is attacking him for ducking a fight against intransigent Republicans and their determination to protect the fortunes of the wealthiest one percent of people in the nation.

Comparing liberal unhappiness with his tax measure to the left’s loud complaints about his health care compromise, Obama said:

People will have the satisfaction of having a purist position and no victories for the American people. And we will be able to feel good about ourselves and sanctimonious about how pure our intentions are and how tough we are, and in the meantime the American people are still seeing themselves not able to get health insurance because of a pre-existing condition, or not being able to pay their bills because their unemployment insurance ran out. That can’t be the measure of — of how we think about our public service. That can’t be the measure of what it means to be a Democrat.

Obama’s move, in the wake of huge Democratic congressional losses last month, is the most daring – and dangerous – piece of presidential triangulation since Bill Clinton and his toe-sucking erstwhile consultant Dick Morris forged a deal on welfare reform with Republicans after Democrats suffered a similar pasting in the 1994 mid-terms.

With national unemployment stubbornly stuck around 10 percent, and his own image sagging in polls, Obama’s gambit carries both considerable opportunities and huge risks for his presidency and, oh yeah, for the future of the economy. Here are some of the key political cross-currents:

Policy: Economically, the cost to the government of the proposed measure is staggering — about $900 billion over the next two years,  including about $120 billion for the high end tax reductions,  plus hundreds of billions more for extending lower rates for all other tax payers, along with expanded maximum unemployment benefits, a reduction in the employee contribution to the payroll tax and other changes.

But with the fragile economic recovery still sputtering, despite increases in corporate profits and other statistical signs of economic growth, Obama has agreed to what amounts to a second stimulus bill in hopes of spurring growth and creating jobs by the time of his re-election campaign in 2012.

Even if the measure succeeds in this way, however, the bottom line is that none of the elements of the compromise are paid for with either higher taxes or spending cuts. This means that the $900 billion will balloon the deficit even more, at a time when the Tea Party and other right-wing factions are clamoring for debt reduction as the highest priority for the government.

Annie Lowery over at Slate has an excellent take on these issues.

Politics: One political goal of Obama’s triangulation play is to win back the support of independent voters, who strongly supported him in 2008 but overwhelmingly fled to the Republicans in last month’s elections.

By challenging fellow Democrats over the bill, Obama signals independents that he puts results above party, even as he harshly criticizes Republicans for placing their own ideology over the economic welfare of Americans. Speaking of the GOP’s stance on the tax issue, he said:

I think it’s tempting not to negotiate with hostage takers, unless the hostage gets harmed, then people will question the wisdom of that strategy. In this case the hostage was the American people and I was not willing to see them get harmed.

Positioning: By giving short shrift to what he portrays as the partisan concerns of both parties, Obama hopes to send the message that his political values are at their core those of a pragmatist, a post-partisan technocrat whose only interest is in making government work and giving people their money’s worth for their taxes.

“This isn’t an abstract debate,” Obama said several times during his news conference:

I’m not here to play games with the American people or the health of our economy. My job is to do whatever I can to get this economy moving. My job is to do whatever I can to spur job creation. My job is to look out for middle-class families who are struggling right now to get by, and Americans who are out of work through no fault of their own.

By kicking the can down the road for two years on the debate about taxes for the wealthy, Obama could gain some additional advantage. Because the extension is only for two years, the issue will resurface at the height of the 2012 campaign, and the president is gambling that both the economy and his own political standing will have improved by then.

On Tuesday, he repeatedly pointed to the Senate’s failure last weekend to pass legislation, which he favors, that would have continued lower tax rates for 98 percent of Americans, but raised them for those with annual incomes above $250,000 in one defeated bill and $1 million in another. But at the same time, he insisted that most Americans agree with his position:

This is not a situation in which I have failed to persuade the American people of the rightness of our position. I know the polls — the polls are on our side on this.

It is this argument that so infuriates many Democrats. With public opinion strongly in favor of raising taxes on the rich, liberals would love to pick a fight with Republicans on the issue, daring them to block the extension of lower rates for 98 percent of Americans on behalf of protecting the top few percent.

They argue that one of a president’s most crucial jobs is to rally the public on behalf of his program, particularly when a majority of voters agree with him, and many Democrats view Obama’s unwillingness to do exactly that as shameful political cowardice.

“I am not arguing from a position of political weakness,” Obama insisted.

Well, actually…

The biggest problem for Obama may be that, political calculations aside, he has basically ceded the merits of the argument over taxes to the Republicans. After winning the presidency by campaigning against conservative, supply-side economic orthodoxy, he now enthusiastically is pushing a proposal that is based on precisely those policies.

If the tax package works, unemployment declines and the economy starts to surge, Republicans can rightfully argue that they were right all along on taxes; if it doesn’t work, Obama will be stuck with both a bad economy and a lot of very angry Democrats.

P.S. As a political matter, the most memorable scenes from Obama’s news conference came when he was denouncing fellow Democrats. It was clear from his words and his tone that he is still carrying a major grudge over liberal denunciations for not getting a public option included in the final health care bill:

You know, so this notion that somehow, you know, we are willing to compromise too much, reminds me of the debate that we had during health care. This is the public option debate all over again.

We finally get health care for all Americans, something that Democrats have been fighting for a hundred years, but because there was a provision in there that they didn’t get, that would have affected maybe a couple of million people, even though we got health insurance for 30 million people…that somehow that was a sign of weakness and compromise. If that’s the standard by which we are measuring success or core principles, then let’s face it: We will never get anything done.

Further reading: Check out Jill Lawrence’s strong piece at Politics Daily, where she argues that the president did a pretty good job with a lousy hand.