JONATHAN COHN NOVEMBER 12, 2010
If you’ve been following the debate about the future of the Bush tax cuts, Thursday was a busy day. It was also a depressing day.
The activity started early, when the Huffington Post reported that the White House was ready to cut a deal with Republicans—and temporarily extend all of the Bush tax cuts, including those that affect higher incomes exclusively.
Why was this newsworthy? Administration officials have for a while hinted that Obama would be willing to extend the upper income cuts temporarily, but only if Congress made the rest of the tax cuts (i.e., those on the first $250,000 of income) permanent. That way, the upper income tax cuts would end in a few years. To renew them, Congress would have to vote on them separately—and it’s a lot harder to pass a tax cut that helps only very wealthy people, since those sorts of tax cuts tend not to be very popular.
For that very reason, Republicans have insisted that all of the tax cuts get extended for the same duration. The Huffington Post story, based on an interview with Obama advisor David Axelrod, suggested the president was ready to go along with that demand:
President Barack Obama's top adviser suggested to The Huffington Post late Wednesday that the administration is ready to accept an across-the-board, temporary continuation of steep Bush-era tax cuts, including those for the wealthiest taxpayers.
That appears to be the only way, said David Axelrod, that middle-class taxpayers can keep their tax cuts, given the legislative and political realities facing Obama in the aftermath of last week's electoral defeat.
"We have to deal with the world as we find it," Axelrod said during an unusually candid and reflective 90-minute interview in his office, steps away from the Oval Office. "The world of what it takes to get this done."
"There are concerns," he added, that Congress will continue to kick the can down the road in the future by passing temporary extensions for the wealthy time and time again. "But I don't want to trade away security for the middle class in order to make that point."
It has been widely assumed that the president would have to accept an across-the-board deal of some kind, but Axelrod's remarks were the first public confirmation of that fact -- and by a figure regarded as closer to Obama than any other White House staffer.
After the article appeared, the president's allies were furious. By mid-morning, the White House was in major walk-back mode, insisting that Axelrod had merely expressed the president’s determination to cut taxes for the middle class and his willingness to compromise with Republicans over the details--sentiments that Obama himself had conveyed already.
What was really going on? Was the administration trying to float a trial balloon? Did Axelrod garble the message? Did the Huffington Post read too much into what Axelrod was saying? I really have no idea. Greg Sargent spent the day tracking and parsing White House statements. You can read them at his blog and decide for yourself.
What I do know is that, at this point, the Democrats on Capitol Hill look incredibly weak and the Obama administration seems unable, or unwilling, to strengthen their resolve.
As my colleague Jonathan Chait has written many times, this should not be a difficult issue for the Democrats to manage. The Democrats should simply hold a vote on the tax cuts for lower- and middle-incomes and dare the Republicans to vote against them. Either the Republicans will cave or they will put themselves on the record as opposing a major tax cut. It’s win-win, at least in political terms.
If more conservative Democrats are worried they will be portrayed as approving a tax increase on the wealthy, since they wouldn’t be extending the upper income cuts at the same time, the Democrats can always hold a second, separate vote on that. The conservative Democrats can vote for it; the rest of the party can vote against it.
Then again, the Democrats could have done that a long time ago. It's what every Democratic leader from Nancy Pelosi to Max Baucus wanted to do before the election. But in both houses, vulnerable and more conservative Democrats signaled their strong objections and intent to break with the party if the votes came up. A big reason was fear--fear that Republicans and the right-wing noise machine would succeed in convincing Americans that Democrats were raising taxes on all Americans in general and on small businesses in particular. (Never mind that even the rich would still get a tax break on the first $250,000 of their incomes.)
The irony is that, purely from a policy standpoint, temporary extensions are far better than permanent ones. Personally, I'd prefer to let all the tax cuts expire, with perhaps a temporary extension of some lower- and middle-income cuts to boost growth while the economy continues to languish.
But that’s probably not where this debate ends up. From the looks of things, Democrats are too scared to do either the right thing or the popular thing. And so they’ll end up doing the Republican thing, creating a situation where the Bush tax cuts on incomes over $250,000 end up last forever.
Maybe I'm wrong. Maybe Obama, when he returns from overseas, uses the occasion to make a clear, unambiguous statement about where he stands--and to show, by example, that Democrats haven't lost their spines just because they lost an election.
Or maybe I'm right. And maybe this is a preview of what we can expect for the next two years.