There’s a lot I’d criticize Obama for: His Bush-like despotic abuse of civil liberties and presidential powers when it comes to US prisoners, for example, is nothing less than loathsome. His ridiculous habit of making concessions to Republicans in return for nothing. His government’s attack on Wikileaks. His refusal to make the filibuster an issue (although here the majority of blame rightly belongs to Harry Reid). His lack of leadership on climate change, the most important issue of this century. (Although here, again, the Senate deserves most of the blame).
So I’m hoping this post won’t lead to accusations that I’m a mindless Obama-worshipers, etc..
But this week’s tax deal isn’t something I’ll hate on Obama for.
Because it’s a good deal.
The GOP got around $95 billion in tax cuts for wealthy Americans and $30 billion in estate tax cuts. Democrats got $120 billion in payroll-tax cuts, $40 billion in refundable tax credits (Earned Income Tax Credit, Child Tax Credit and education tax credits), $56 billion in unemployment insurance, and, depending on how you count it, about $180 billion (two-year cost) or $30 billion (10-year cost) in new tax incentives for businesses to invest.
That’s $125 billion in the tax cuts Republicans wanted, and $246-$396 billion of the tax cuts Democrats wanted. Frankly, that’s about $200-$300 billion dollars better than I expected. (It’s likely that Congress will wind up changing these numbers somewhat before the final bill is signed, but the baseline has been changed in a very positive direction). Overall, imperfect though it is, it’s more stimulus than anyone expected — and stimulus for the economy should be a higher priority than either deficit-cutting, or tax fairness, until unemployment drops to reasonable levels.
I think we might have gotten a better deal if the Democrats in the Senate had been standing firm on taxes over the last month, rather than a whole bunch of them being obviously and publicly weak on blocking the extra tax cuts for the rich. That wasn’t Obama’s fault, but it put him in a bad bargaining position.
And nonetheless, Obama walked away with a much better than expected bargain.
I know that the press thinks otherwise, and Republicans think otherwise. That’s because both the press and the Republicans are fools. They don’t do the math; they just pay attention to who won the news cycle. Well, Republicans won this week’s news cycle. But they lost on the numbers.
President Obama did, after all, extract more concessions than most of us expected. [...] All of this is very much second-best policy: consumers would probably spend only part of the payroll tax break, and it’s unclear whether the business break would do much to spur investment given the excess capacity in the economy. Still, it would be a noticeable net positive for the economy next year. [...]
This political reality makes the tax deal a bad bargain for Democrats. Think of it this way: The deal essentially sets up 2011-2012 to be a repeat of 2009-2010. Once again, there would be initial benefits from the stimulus, and decent growth a year before the election. But as the stimulus faded, growth would tend to stall — and this stall would, once again, come in the months leading up to the election, with seriously negative consequences for Mr. Obama and his party.
Krugman’s argument is that even if though the compromise is more than he thought Obama would be able to get, and “would be a noticeable net positive for the economy next year,” it could also lead to electoral trouble in two year’s time.
First of all, that amounts to criticizing Obama for taking a deal that’s good for the country even if it’s not ideal for the Democrats politically. Since when is putting the country’s needs first the wrong thing to do?
Secondly, the politics of this aren’t as clear-cut as Krugman claims (Krugman is an authority on economics, not on politics). The problem in 2010 wasn’t that the “recovery” had stalled; it was that the recovery only existed on paper and in corporate balance sheets, but not in the areas that ordinary Americans care about. The unemployment rate didn’t drop, and in general people don’t have any more money to spend or feel less economically vulnerable.
If we see some real economic improvement — dropping unemployment, more security, more spending money — then the Democrats will be in a stronger position for the 2012 election, even if things level off before November 2012.
And if that doesn’t happen, my bet is that things like the payroll tax cut get extended another year. Extending tax cuts for the majority of working Americans during a time of economic crisis is not the most difficult political lift in the world. But if Republicans want to fight for raising every working American’s taxes with just 10 months to go until the 2012 elections, would that really hurt the Democrats in 2012?