Posts Tagged ‘Obama Tax Compromise’

I’m With Krauthammer

Tuesday, January 4th, 2011

Just catching up from the holidays and posting a few things I missed while gone.

This is from the aftermath of the tax deal.

While the Democrats were damning the president for giving up core principles and Republicans were crowing about the fact that they got their number one priority (tax cuts for the top 2%) by threatening to stop all legislative activity, (including benefits for 9-11 first responders and tax cuts for 98% of Americans) Fox News Commentator Charles Krauthammer wrote this piece, in which he called the tax cut deal a “really big win for the president.”

He cited some of the same reasons that I had given for arguing that it wasn’t such a bad deal for Obama, namely that Obama, in effect, tricked the Republicans into running short term deficits to stimulate the economy after they spent two years arguing that deficits were no good and very bad, even during a recession.

In a somewhat discordant note, Krauthammer noted that the deal “will add as much as 1 percent to gross domestic product and lower the unemployment rate by about 1.5 percentage points.”… Sounds good to me so far… but, he quickly added, ”that easily could be the difference between victory and defeat in 2012.”

For someone who spends their time writing and thinking about politics, that is a stunning statement to make. We’re in the greatest recession since the Great Depression, hiring has stagnated and we are debating a policy that you believe will add 1% to the GDP and lower unemployment by 1.5%… But you consider that a bad thing because Obama might get re-elected when more people have jobs? That’s positively Limbaugh-esque.

But I digress…Krauthammer followed this one up with another article in which he said that, if Obama is reelected, “historians will mark his comeback as beginning on Dec. 6, the day of the Great Tax Cut Deal of 2010.” There’s a lot of water that needs to pass under that bridge, but this may ultimately be true. If the economy comes back, Obama’s going to get the lionshare of the credit. The stimulus effectively built a floor under the economy and (we can hope) the new package will prime the pump for more private sector hiring to get this economy going.

All in all, Obama ends his 2nd year with a ton of challenges, but also a ton of accomplishments.

As I joked recently, Obama’s first two years have been a total failure:

  • preventing a Great Depression
  • stabilizing the US banking system
  • rescuing the American Auto Industry
  • equal pay for women
  • a children’s health care expansion
  • ending subsidies to corporate banks for college loans
  • a major national service program expansion
  • the largest federal investments in energy and education in the country’s history
  • the largest federal investments in infrastructure in the country’s history
  • health care for 30 million more Americans (which eluded progressive presidents for 70 years)
  • significant increases in assistance for veterans
  • repeal of Don’t Ask Don’t Tell
  • a new START Treaty with Russia

And even though the Democrats had historic losses in the House, his approval is still better than Reagan and Clinton at the same time in their presidencies.

and now comes the pivot to the center.

All this against the backdrop of a Republican Congress that ended the year explaining how some $17 billion in unemployment extensions during the worst recession since 1932 “need to be paid for” but $140 billion in tax cuts for the top 2% can just be added to the deficit.

As Krauthammer notes, soon after they voted for the tax deal,

Republicans began righteously protesting $8.3 billion of earmarks in Harry Reid’s omnibus spending bill. They seem not to understand how ridiculous this looks after having agreed to a Stimulus II that even by their own generous reckoning has 38 times as much spending as all these earmarks combined.

Hey, I’m all for ending earmarks. They’re symbolic of a broken process in which even the so called “fiscally conservative” bring home the goodies for their constituents. But let’s get real: they account for one half of one percent of the federal budget; and defeating a proposal that has $8.3 billion in earmarks with one hand while you increase the federal deficit by $900 billion with the other does not show “fiscal responsibility.”

As I noted before, the biggest short term benefit to this deal for Obama is to show how hypocritical the Republicans are when it comes to running deficits that benefit their core constituency (those in the upper income brackets).

At least on that point, I’m with Krauthammer.

Obama Makes Lemonade out of Lemons

Friday, December 17th, 2010

I have to say that I have been surprised at the liberal fulmination over the two year extension of Bush tax cuts. On one level, I get it: it’s frustrating as hell that the Republicans acted as irresponsibly as they did over the past two years and have been rewarded with a control of the House, 6 new seats in the Senate and the policy that they care about the most: tax cuts for the rich (which are also the least economically stimulative of the policies that have recently been considered). Still, it’s hard to say that you couldn’t see this coming and I would argue that the total package is not a bad deal either politically for Obama or economically for the country.

Regarding the extension of tax cuts for the rich, the die was probably cast when the Democrats punted on taxes in the run up to the election. They didn’t have the votes in the Senate for an extension of tax cuts for just the middle class (due to Republican filibuster threats and Democrats that vote like Republicans) and didn’t want to put a handful of their own members in a situation of filibustering the Democrats’ tax bill just before a tough election. The House, in turn, refused to take another tough vote if the Senate couldn’t pass the bill.

The Democrats problem here was the same one that they had for the past two years: they were afraid to stand up to the Republicans and provoke a fight over taxes. What they should have done is made the Republicans (and Lieberman, Ben Nelson, Blanch Lincoln, etc.) filibuster….and I don’t mean have a cloture vote, say that they couldn’t get 60 votes and then go home early for the weekend. I mean make them stand up on the Senate floor and talk and talk and talk about why they were filibustering tax cuts for 98% of the people so that they could preserve taxes for the top 2%.  They may not have gotten their bill passed, but it would have been a clear contrast for the American people and they could have prepared the public for the fight we are having now and put pressure on Republicans for a better deal. Senate Democrats have complained that Obama is not standing up enough to the Republicans, but they are the ones responsible for not dealing with this issue until the last two weeks of this session and giving the Republicans maximum leverage.

And while the deal cut with Republicans is far from an optimal deal, there are a number of ways that this deal works politically as well as economically for the President and the country as a whole. First, most economists agree that the economy needs additional stimulus and that the worst thing you can do during a deep recession is to cut government spending and raise taxes. Obama clearly believes this as well, since he has argued for it both domestically and internationally again and again, even when he can’t get agreement from allies.

A comparison of the framework agreement between the Obama administration and congressional leaders and another option

Just after the election, I commented on Peter Beinart’s lamenting ”the Death of Keynesianism” as a result of the Republican victory. In the aftermath of the election it seemed that the dysfunction in Washington left Ben Bernake’s Fed holding the only weapon in the fight to revive our economy. But the president is showing that the death of Keynesianism has been greatly exaggerated, at least for the short term. While the policies agreed to in the compromise are far from the most effective stimulative policies, they will provide some lift to the economy that would have been missing had the Republicans governed like they campaigned.

As I’ve said before, I’m not completely opposed to a 2 year extension of the Bush tax cuts for the top 2%, although I would rather see those provisions expire and the money be redirected to tax cuts that actually stimulate more (like a payroll tax cut that benefits employers as well as employees (instead of just employees)). It also would have been nice to get some construction projects to deal with our crumbling national infrastructure, but perhaps this was a bridge too far for the Republicans. What we will get is a  package of tax cuts that, depending on how you break them out, amount to close to a stimulus of $900 billion (or $600 billion over and above what had previously been supported by both parties).

In addition to the economic benefits of the tax cut deal, Obama may reap some political rewards as well. As Chuck Todd has pointed out, part of Obama’s problem over the past two years has been that he has acted more like a Prime Minister trying to shepherd his agenda through Congress than a President using the bully pulpit to call legislators out in order to build support for his agenda (as he was able to do so effectively in the 2008 campaign). And while the strong reaction from the left has been surprising, recent opinion polls have showed broad support for the deal. In addition, economists have projected that the tax cuts will increase the  GDP by as much as 1%, create an additional 3 million jobs and decrease the unemployment rate by close to 1.5%.

As an added bonus, the debate has shown just how hypocritical the Republican party’s leaders really are. For the past two years, they consistently complained about the budget deficits that were run in order to prevent an even larger economic collapse than we actually had. They pretended that they couldn’t distinguish between short term deficits to prop up the economy, and long term structural deficits that were unsustainable. As my conservative uncle liked to say, the Tea Party led Republicans were going to bring “fiscal responsibility” back to Washington. And what did they do within a month of their election? Add another $900 billion to the deficit before the new Congress even got there. Like I said previously, I understand that you need to run deficits in times of economic downturn. But I didn’t spend the last two years running a constant campaign against those deficits. 

Some have argued that the Republicans may be successful at extending the Bush tax cuts for the top earners in 2012. But this also sets up a fight that Obama can use to his advantage. If the Republican House brings up the extention in 2012, it should die a quiet death in the Senate. Plus, the country will be focused on deficit reduction by then, and Mitt Romney can explain to the country in the presidential debates why he wants to add another $700 billion to the debt and the onus will be on him to propose cuts to programs in order to pay for them.

The deal is far from perfect. But, all in all, it’s a much better deal than I thought Obama could get just a few months ago.

But don’t take my word for it. Take Charles Krauthammer’s.