A deal for Obama, but the wrong sort of drama
Well, it's not exactly how I would have done it.
President Obama deserves credit for cutting a tax-cum-stimulus deal with Republican leaders that involved distasteful concessions on both sides. That's the difference between "finding common ground," which is easy, and real "compromise," which is harder and had fallen out of fashion. Now that the ice has been broken, maybe the next one will come a little easier.
It's also a good sign that the president has finally realized that the only way he is going to succeed is to force congressional Democrats to follow his lead rather than the other way around. If he'd done that earlier in his presidency, he wouldn't have found himself with his back against the wall after last month's drubbing at the polls. It's not just okay if some liberal Democrats in Congress feel they have to vote against a deal that requires many Republican votes for passage - it's actually a good thing. It means the president finally understands the difference between leading the country and leading his party.
What I do have a serious problem with, however, is the substance of the deal and the political trap he fell into before negotiating it.
First, the politics. A lot of politics is theater, and the expiration of the Bush tax cuts offered the president and his party a perfect venue for exposing Republican hypocrisy when it comes to creating jobs and reducing the deficit and the GOP's utter determination to deliver tax cuts to millionaires.
In Act One of such a drama, the Democratic House passes a bill extending tax cuts for the working and middle classes. The money that would have otherwise gone to upper-income tax breaks would be used instead to extend jobless benefits for 6 million workers who have been unemployed for more than a year while providing tax breaks for businesses that hire workers or invest in equipment.
In Act Two, the Democratic Senate tries to take up the House bill, only to be thwarted by Republican objections under Senate rules. In response, Senate Democrats force Republicans to mount a real-life filibuster, running round-the-clock sessions that require senators to remain at the Capitol through the holidays, sleeping on cots arrayed outside the Senate chamber. As the debate drags on and the deadline approaches on the expiration of the tax cuts, the president sets himself up in a room at the Capitol, ready to sign a tax cut for the middle class and veto any tax cuts for millionaires. As the clock strikes midnight on Dec. 31, the curtain falls as the president is photographed either signing the legislation surrounded by tired but smiling colleagues or sitting glumly at an empty table with no bill to sign.
Nobody really knows how the American people would have responded to such a drama or how exactly it would have ended. What I can assure you is that nobody would have any doubt about whom to blame for any failure to extend middle-class tax cuts. And if the tax cuts did expire, there would still have been an opportunity to strike a retroactive deal with the new Congress just like the one agreed to this week, with little lasting damage to the economy or incomes of American households.
This is not simply a matter of symbolism, as the president suggested this week. It's a matter of signaling to the country and the GOP leadership that the president will not bow to political hostage taking. Now that he has blinked, you can be sure that Sen. Jim DeMint and the Tea Party zealots are already plotting how to block legislation to raise the debt limit or appropriate funds to keep the government running in order to force repeal of health reform. Given the inevitability of such a showdown, the president would have been better to orchestrate it early, on his own terms and over an issue on which the public is clearly on his side.
Of course, a variation of this drama could have played out last summer if congressional Democrats had been willing and unified enough to make it a cornerstone of the fall campaign. Their complaints now about presidential cowardice sound a bit hypocritical.
As for the substance of this deal, economists generally agree that extending unemployment insurance and providing tax breaks for business investment are fair and cost-effective ways to add juice to a lackluster economy. But I'm less convinced about the wisdom of additional payroll tax cuts to stimulate spending by American households that, after decades of over-consumption, are finally beginning to save again. Democrats rightfully complained that the tax cuts were the least-effective parts of the original stimulus package, and there is no reason to expect they will work any better this time. The fact that the stock market could not sustain a rally Tuesday suggests there are others who share this skepticism.
The bigger problem with the tax deal is that it represents a big step backward on the road to getting deficits under control. Given the choice between the Republicans' high-end tax cuts and Democratic stimulus, the "compromise" is to do both now.
It would be one thing if the president and Republican leaders who agreed to this short-term spending spree had embraced the long-term plan proposed last week by a majority of the members of the deficit-reduction commission. Unfortunately, neither did. In that regard, the most encouraging aspect of the tax deal is that none of the tax cuts would last more than two years.
Should the economy revive and unemployment fall, however, don't look for Republican leaders to agree that it's time to raise taxes as part of a debt-reduction strategy. For them, the weak economy is mere pretext for tax cutting, not an underlying rationale. Given the choice between raising taxes or lowering the deficit, there's no doubt where their priority lies.
For his part, the president hinted in his news conference Tuesday that he's eager to grab the mantle on deficit-cutting by following on the deficit commission's call for tax reform that reduces rates and eliminates most tax breaks while raising additional revenue. That, too, should offer the opportunity for winning political theater. Let's hope that on that occasion he decides to show up for the performance.