Tuesday, December 7, 2010

Obama's Preemptive Surrender on Tax Cuts for the Wealthy

I don't think I've ever been too angry to blog. When President Obama took office and filled his White House economic team with the same guys who brought us financial deregulation and the Great Recession, I typed away. When Obama's Justice Department refused to even investigate Bush and Cheney for their self-confessed war crimes of torturing prisoners, I blogged on. When Obama refused to campaign for a public option in the health care legislation, when he doubled down on the war in Afghanistan, when he didn't lift a finger for the Employee Free Choice Act, when he continued the NAFTA-style trade policies he campaigned against, it was all blog, blog, yap, yap on my end.

But watching Obama's preemptive surrender to Republicans on extending the Bush tax cuts for the wealthy made me afraid I'd break the keyboard. What makes this sellout different than the rest is that it's not just bad policy, it's bad politics.

So, Republicans said they would block everything that came up in the Senate unless the rich got their tax cuts extended. Oooh, I'm really scared. How easy it would have been to expose them for what they're doing--essentially holding the American people hostage until we pay ransom money to the rich. Congressional Democrats started on that line of attack. They put forward bills that would extend tax cuts for the middle class but let those for the rich expire. Meanwhile, in typical fashion, Obama did not lift a finger to influence the fight going on in Congress. Before that fight even got started, we were hearing in the news media almost daily that a deal was going to be struck to extend the tax cuts.

What should have happened: With the Republicans demanding money for their wealthy clients while holding a gun to the head of the middle class and Democrats standing strong in Congress, the news media should have been full for days and days of discussion on the differences between the Democratic and Republican positions. There is probably no better issue out there to expose the GOP for what they are--shills for big money. Republicans had staked everything on an indefensible position ("We will kill all of you unless you throw more cash to the rich!"). With pressure, which requires the White House weighing in and prolonged national media attention, eventually enough Senate Republicans would have peeled away for Democrats to pass the middle class tax cuts only, and we would have won. Heck it wasn't long ago that even John Boehner was saying that he would vote for the middle class tax cuts if the Democrats did not also offer them for the wealthy. In the worst case scenario, the deadlock would have remained into January and all of the tax cuts would have expired. And voila! Democrats would have an unbeatable political issue going into 2012: "Republicans voted to raise everybody's taxes. Their only care in the world was serving the rich."

What actually happened: Instead, Obama broadcasted such weakness and willingness to "negotiate" so far in advance on this issue that Republicans were emboldened. So much so that Republican Senate leader Mitch McConnell was comfortable scribbling his ransom note. So Obama and the Republicans agreed to a deal--a two-year extension of all of the Bush tax cuts (and additional cuts to the estate tax beyond even those of the Bush years...huh?!) in exchange for extending long-term unemployment benefits for one year and a one-year payroll tax reduction that would cut the amount contributed to Social Security from 6.2 percent to 4.2 percent. Doesn't sound like much of a deal to me.

A glimmer of hope: Somebody forgot to tell Congressional Democrats that it was time to cave. There are now petitions going around progressive websites trying to rally Democratic opposition to the Obama-GOP deal. So far, it's working. There are reports of "triple-digit" Democratic opposition in the House and several Senate Dems have spoken out strongly against the deal. Bernie Sanders even promises to filibuster the deal as it stands.

What happens next depends on how much Democratic opposition there is to Obama's deal with the hostage-takers. If the deal ends up passing with a unified block of Republicans and a few crossover Dems to get the majority, there will be new calls to challenge the president in the Democratic primary. And rightly so.


Jenni said...

I actually slammed my fist down on my laptop when I read this news. I am so furious. What happened here was not a "negotiation." I can't even believe that he just gave everything away like that. I was angry enough last week when he said he was going to freeze government worker salaries for two years, punishing the middle class, in what can only be seen as a symbolic gesture. He'll take $60B away from middle class government workers but won't support generating $700B in new revenue from the wealthy? This is not the man I voted for. I am so through with this guy. When is he going to act like he's in charge over there? When is he going to set a real agenda and FOLLOW IT? When is he going to stop betraying the people who voted him in? I mean what kind of "liberal" extends tax cuts for the wealthy? He's a traitor.

delaine said...

Well, I am steamed, disillusioned, and disappointed with. president Obama. How can it be that a man who captured our imagination and verbalized what many of us were thinking and seemed to have the spark to inspire and lead now seems so adrift? I thought when the public option went nowhere that maybe he was working behind the scenes and things would turn out okay for us. No. At every point you mentioned in the last two years, it seems that Mr. Obama caved or gave in way too quickly. I just don't understand his reluctance to fight the Republicans-especially when their announced strategy since the election of 2008 is to make his presidency a failed one. Of course, it must be said they are more than willing to harm the country in their efforts. This tax cut "compromise " is terrible public and economic policy! The middle class-or what's left of it- should be shouting from the rooftops! He spoke about keeping his eyes on the "long road" instead of the short one. What does that long road promise us now? I am not encouraged. I have cut Mr. Obama a lot of slack in the past. Now I am seriously troubled by his thinking. And choices.

melondonkey said...


In some sense, doesn't Obama win politically out of all this? The media and the blogosphere is exploding with coverage of this deal, which still has the same effect of making Republicans look like protectors of the rich. Meanwhile, Obama comes out looking like a pragmatic thinker to the center. Had he fought the Republicans on this and lost, I bet he would have come out the loser still because, as many have noted, the Republican machine is just better at messaging.

However, your post makes a good case that it is part of a pattern of backing down to Republicans rather than a one-off strategic move. As in chess, I always assume politicians are making the most strategic move possible and have not overlooked anything.

Also, maybe a Republican caught Obama with a prostitute and promised not to tell as part of the deal.

Veronica said...

I am completely disillusioned. Where did the Obama who inspired us, who seemed to voice the things we were feeling, go? Like Delaine, I tried and tried to cut some slack, to think that I don't really understand the goings-on-behind-closed-doors in politics and maybe there's something good to come from these compromises that have been happening since he took office. But with this, yet another compromise on an issue that I thought was uncompromisable, I had my first real feeling that I would like to vote for someone else in 2012. Ugh.

Becky said...

I know. And amen to what everyone has said.

Why doesn't he fight when the public is with him?

I agree with Paul Krugman. The whole thing looks like a moral collapse.

Dave said...

Amen indeed. I'm glad to see that other people are feeling the same way. I seriously doubt the White House counted on the backlash they're getting over this. For evidence, see today's press conference where Obama's harshest words were reserved for progressives. He was all hot and bothered.

Jenni, thanks for bringing up the pay freeze--another example of preemptive surrender that blows my mind. I plan to post on that soon.

Melondonkey, you raise an interesting point. It may be that this is all White House grand strategy/three-dimensional chess/voodoo magic. Maybe Obama feels like he has everybody right where he wants them. The right and left are yelling at him, and he's sitting tall and pretty in the middle. Maybe that's right where he wants to be for 2012.

However... if that's all his presidency is going to be--a calculating centrist who's main principle is to get reelected--that's not someone that many progressives will care to campaign for in 2012.

In other words, if this is political calculation on his part, I think he's miscalculating. I don't think he can win reelection by riding the "center." I think he is taking his progressive base for granted and that that base will disappear if he's not careful.

This administration's idea of leadership is pretty strange. On health care, for instance, Obama laid back and let Congress do all the work deciding what the bill would include, which probably weakened the bill and almost lost it entirely. Then on other issues, like these tax cuts, he jumps way out ahead of his party and stakes out strange, unpopular positions.

Jenni said...

Ugh, did you see him trot out Clinton today? Pathetic.

Robert J Hinson said...

Hey Dave, it’s your cousin from the lone star state... don't worry I haven't turned to the right just from being in the middle of the Bible belt, but I am admittedly indifferent to political affiliation.

One thing I would like to point out is that, although not a fan of Bush in general, the tax cuts enacted during his administration did benefit a lot more than just wealthy. If the sunset provisions in the tax code for Bush era tax cuts are not extended, the lowest marginal tax rate could reasonably be expected to increase from 10% to 15% while the upper "wealthy" range could go from 35% to 39.6% with small increases in all positions in between. This will affect not only the wealthy but all taxpayers.

There is also a current provision that gives preferential tax treatment to long term capital gains. As of now, the maximum tax rate applicable to qualified LT capital gains is 15%, this could go up to 20% if the provisions expire and historically has been taxed at ordinary income levels. This will affect traditional IRA distributions as well as all 401k distributions that were not previously designated ROTH.

There are also phase out level decreases that will affect businesses of all sizes but have the largest impact on smaller businesses (I am referring specifically to the limits on section 179 deductions if electing MACRS depreciation).

I know it is a boring subject to discuss in a forum which is why I have limited my post to three examples but I would be happy to discuss more if there is anyone else out there who enjoys this type of thing. My point is to not let this decision make or break your opinions of the president. Sure the tax cuts benefit the wealthy, I mean they are reductions in income taxes ergo the highest earners get the most benefit. Let’s not forget that these cuts also benefit middle class America and small business as well.

Keep up the good work Dave! I really enjoy your blog. It seems like all the family has one, I’ll have to start one soon. Maybe it could be a blog about taxes 

Dave said...

Hey Jared, glad you stopped by! You make a good point that the Bush tax cuts in themselves did benefit more people than just the wealthy. Although, I think they were part of a larger conservative effort to dismantle government. Conservatives today are up in arms to slash Social Security and other programs in part because of the deficits these tax cuts helped create.

De-fund government and then claim that the government can't afford to do anything. It's the old "starve the beast" strategy.

I hope you keep reading. BTW, I'll be the first reader of your tax blog!