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


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.

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There are 5 comments for this post

  1. avatar gdewar says:

    Funny how political “Courage” and “triangulation” is always defined as a Democrat tellin the Democratic base voters to piss off, and is NEVER defined as a Republican telling his base voters to piss off, yeah?

    Funny also how the Republicans define victory as “defeat Obama at all costs, frak the nation” and the Democrats define it as “do what you can to make those people who hate you to hate you a little less, regardless.”

    Can we have a website that makes all the rich people prove how many jobs they’re creating with that tax cuts? oh wait, no we can’t do that.


  2. avatar chrisfinnie says:

    We worked to elect a change candidate who now thinks that crumbs should be an okay substitute. Reminds me of a Lexus commercial I saw the other day where the parents are trying to convince kids that the cheaper gift is just as good. The kids reply, “No it’s not.”

    The “new” language in the Senate healthcare “reform” bill that’s supposed to prevent you being kicked off your insurance policy for being sick is not new at all. It’s the same language that was already the law of the land, and that insurance companies have been getting around quite nicely for years. I don’t know if your insurance costs went down at all, but mine haven’t. And my coverage hasn’t improved either. As for the uninsured getting insurance, they can if they can afford it. Since wages are dropping and insurance costs aren’t, good luck with that. I’ve looked for those affordable options we were supposed to see. If you can find them, please let me know where!

    To add insult to injury, Jason Linkus reports today in the Huffington Post that taxes under the recently announced deal will actually rise for low-wage earners. http://www.huffingtonpost.com/2010/12/07/tax-cut-compromise-whose-taxes-rise_n_793572.html Really? The people who can most afford it get a cut and those who are already struggling get kicked in the teeth? Really?

    As for the Republican argument that we need to maintain these low tax rates to increase jobs, I will quote John of Orange and say chicken crap. They’ve been in place since 2001 and all we’ve seen is job losses. If they haven’t worked so far, why should they start now?

    But, as always, Jon Stewart and John Oliver summed it all up better than anybody. http://www.huffingtonpost.com/2010/12/08/stewart-takes-on-obamas-t_n_793658.html

    Having worked to help elect President Obama, I do feel pissed on. And not at all inclined to work to re-elect him. This wasn’t the change I believed in. And all I hope for at this point is that the GOP doesn’t roll him too badly over the next two years. He once said he’d rather be a really good one-term president than win re-election. How about a really bad one that doesn’t win re-election?

  3. avatar tegrat says:

    Obama is unlikely to win any Independents with this move, and any that he does will be more than offset by losses to his base He started with the correct legislation being passed by the House and stuck in the Senate, and then went on to negotiate a “deal” that won’t pass either body. That’s just not good politics, and it certainly isn’t good policy as the “deal” not only raises taxes for the poorest of taxpayers, it adds another jolt to the deficit while doing nothing to stimulate job creation.


  4. avatar SharkBoy says:

    The “all or nothing” mentality is pervasive in politics, both between parties and between interest groups. And it is the most damaging approach to policy-making that I can think for this country. The Dem’s feigned indignity over this deal is absurd and pathetic. This deal includes an entire year extension of unemployment benefits, tax cuts for everybody (not just the middle class, not just the poor, not just the rich — everybody), reduced payroll taxes, etc. To be acting so aghast at the deal Obama made is just ignorant and transparently political. Hate the Bush tax cuts for wealthier Americans all you want, but don’t try to pretend that falling on your sword over it on a deal that will very literally benefit millions of Americans of every breed and social standing is in pursuit of some moral high ground. In this case, I think Obama has a monopoly on the moral high ground, putting both the Democrats and Republicans in Congress to shame. Compromise happens, gets things done, and does so with a middle-finger aimed at the unflinching political ideologies of those concerned only with reelection. I’m a Republican, and my opinion of Obama the pragmatist just increased dramatically.

  5. avatar SezMe says:

    SharkBoy is part of a newly emerging trend of Elephants getting behind Obama. Just last night I heard a pundit who is probably further to the right of SharkBoy express the idea that he could vote for Obama.

    So here’s my future scenario: Obama continues to govern to the right of Nixon. Except for the completely loony Beckians out there, the Reps increasingly get behind him. In Jan, 2012 Obama recognizes that the Reps lack any presidential timber while the Donkeys are at his throat. So he jumps ship, embraces Palin as his #2 and sweeps to an unheard of second term heading the opposition party.

    The Donkeys never get off the fainting couch. Eventually they run some yahoo from Buttplug, Iowa who ends up with 10 votes in the electoral college.

    Remember, Buzzards, you heard it here first.

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