Barack Obama won the great tax-cut showdown of 2010 — and House Democrats don’t have a clue that he did. In the deal struck this week, the president negotiated the biggest stimulus in American history, larger than his $814 billion 2009 stimulus package. It will pump a trillion borrowed Chinese dollars into the U.S. economy over the next two years — which just happen to be the two years of the run-up to the next presidential election. This is a defeat?
If Obama had asked for a second stimulus directly, he would have been laughed out of town. Stimulus I was so reviled that the Democrats banished the word from their lexicon throughout the 2010 campaign. And yet, despite a very weak post-election hand, Obama got the Republicans to offer to increase spending and cut taxes by $990 billion over two years — $630 billion of it above and beyond extension of the Bush tax cuts.
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No mean achievement. After all, these are the same Republicans who spent 2010 running on limited government and reducing the debt. And this budget-busting occurs less than a week after the president’s deficit commission had supposedly signaled a new national consensus of austerity and frugality.
Some Republicans are crowing that Stimulus II is the Republican way — mostly tax cuts — rather than the Democrats’ spending orgy of Stimulus I. That’s consolation? This just means that Republicans are two years too late. Stimulus II will still blow another near–$1 trillion hole in the budget.
At great cost that will have to be paid after this newest free lunch, the package will add as much as one percent to GDP and lower the unemployment rate by about 1.5 percentage points. That could easily be the difference between victory and defeat in 2012.
Obama is no fool. While getting Republicans to boost his own reelection chances, he gets them to make a mockery of their newfound, second-chance, post-Bush, tea-party, this-time-we’re-serious persona of debt-averse fiscal responsibility.
And he gets all this in return for what? For a mere two-year postponement of a mere 4.6-point increase in marginal tax rates for upper incomes. And an estate-tax rate of 35 percent — it jumps insanely from zero to 55 percent on Jan. 1 — that is somewhat lower than what the Democrats wanted.
No, cries the Left: Obama violated a sacred principle. A 39.6 percent tax rate versus 35 percent is a principle? “This is the public-option debate all over again,” said Obama at his Tuesday news conference. He is right. The Left never understood that to nationalize health care there is no need for a public option because Obamacare turns the private insurers into public utilities. The Left is similarly clueless on the tax-cut deal: In exchange for temporarily forgoing a small rise in upper-income rates, Obama pulled out of a hat a massive new stimulus — what the Left has been begging for since the failure of Stimulus I, but was heretofore politically unattainable.
Obama’s public exasperation with this infantile leftism is both perfectly understandable and politically adept. It is his way back to at least the appearance of centrist moderation. The only way he will get a second look from the independents who elected him in 2008 — and who abandoned the Democrats in 2010 — is by changing the prevailing (and correct) perception that he is a man of the Left.
Hence that news-conference attack on what the administration calls the “professional Left” for its combination of sanctimony and myopia. It was Obama’s Sister Souljah moment. It had a prickly, irritated sincerity — their ideological stupidity and inability to see the “long game” really do get under Obama’s skin — but a decidedly calculated quality, too. Where, after all, does the Left go? Stay home on Election Day 2012? Vote Republican?
No, says the current buzz, the Left will instead challenge Obama for the Democratic nomination. Really now? For decades, African-Americans have been this party’s most loyal constituency. They vote nine-to-one Democratic through hell and high water, through impeachment and recession, through everything. After four centuries of enduring much, African-Americans finally see one of their own achieve the presidency. And their own party is going to deny him a shot at reelection?
Not even Democrats are that stupid. The remaining question is whether they are just stupid enough to not understand — and therefore vote down — the swindle of the year just pulled off by their own president.
Without agreeing with every underlying assumption and assertion in the piece (some major talking points left untalked), the deal is not a loss for the President despite the feel of victory on the right. In one act, he seriously undermines the strongest and widest criticism mounted against him and the democrats in the mid-terms - that they are harmful ideologues. But, why isn’t it to all democrats’ advantage for some of them to shout their ideals while making Obama appear to be the soul of reason?
This is going swimmingly for the incumbent. He can take credit for what works in his compromise and blame republicans for anything that doesn’t work out. It’s a free lunch.
The liberals may have won another battle, but they are going to lose the war. The problem with liberalism is that it requires a strong central government. The liberals have that now, including a Supreme Court ready to rubber stamp every increase in government power. But they won't have it for long. The Federal Government is headed for collapse in just the next few years. The entire welfare state will be swept away. Without the Federal Government, liberalism will become irrelevant.
Far be it from me to question Mr. Krauthammer, a man whom I deeply respect and almost always agree with, but I'm having trouble swallowing this one, vis a vis this being a "swindle" given that a large part of this was simply a preservation of existing tax rates, not a "cut" as many keep portraying it.
Even if this is the case, what exactly would he suggest Republicans do differently? Allow the tax rates to go back up? Maybe not the end of the world as he seems to suggest, but not a politically smart idea at this moment in time it would appear to me. Should we have fought the unemployment benefit extension? I wouldn't personally be opposed to that, but I can guarantee Republicans would be crucified for "cutting benefits right before Christmas!" and you can take that one to the bank.
I confess that I just don't get this one. He seems to be suggesting that Republicans were going to come out of this one losers no matter what we did and no matter what, Obama and not Republicans will get the credit for a revived economy.
Perhaps I should trust my intellectual betters, but I'm just not seeing this the way he is.
I said two days ago that this deal didn't past the smell test and Mr. Krauthammer lays out many reasons why this is indeed the case.
Congratulations, Mr. President, you snookered not only clueless Republican politicos in DC but also our "conservative" brethren on the NRO editorial board. Good work.
I pray this deal fall through a is revisited when more conservatives arrive on the scene in January. The current tax rates need to be made permanent without the giveaways of another Stimulus package.
another astute observation by charles. he is spot on. obama is no dummy and he absolutely is able to get what he wants through manipulating the republicans to fund his programs. if he is willing to accept a tax cut there is little reason he could not have done the same in 2009, but why didn't he? to pay of constituents. now that his cronies are funded, he can focus on the economy. now that he has consolidated power in the central gov with 'no crisis wasted' he can toss bread to the populace. i hope the tea party does not under estimate obama any longer....
Sorry Charles,
Somebody forgot to tell Barrack he should be marshalling a victory parade. His prune face belies the visage Krauthammer imagines. While tax deal does not provide an optimum resolution of the looming tax debacle, Krauthammer repeats the Democratic canard of lost revenue. As Krauthammer knows, although it doesn’t fit his proclamation that Obama has found his Blenheim, the deal defeats a tax increase. It does not, with respect to the Bush tax levels, represent a tax cut. I will be no richer after January 1, if the Bush tax levels hold, but I could be substantially poorer. Krauthammer hits the bull’s eye on “stimulus” spending beyond the Bush levels, but risking the economic double dip likely to follow the massive tax increase hardly seems worth rejecting the deal. If Krauthammer is worried about lost government revenue, he should consider what will be lost when the tax increase hits the fan. In any case, Krauthammer stretches credulity by declaring Barrack victorious. In this situation, to paraphrase Patton, a good plan today vigorously executed, is better than a perfect plan tomorrow.
Sertorius
Love the Hammer but this time he missed the nail. Tax rates were extended - great. His first mistake is calling the continuation of the rates as increasing the deficit - no it doesn't. It does nothing. The revenue is now fixed - so now go cut the spending. And at this point the GOP has no power to impact that at all - but that changes next January. If that doesn't, then the primary challenges in 2012 will be a sight to see.
I'm not sure where Mr Krauthammer gets his figures from. The assumption he makes mirrors the liberals talking points concerning the "cost of the tax cuts". For one thing, the compromise should be seen as a negative. That is, it prevented a whole host of tax increases from the Clinton ERA AMT to the Death Tax, increased capital gains, and reducton in EIC payments to the middle class. The point of the compromise was to prevent all of these tax increases when unemployment is again inching upwards of 10%. The cost of the tax increase in regards to hundreds of thousands of lost jobs would more than offset any "revenue increases" due to the tax cut expiration. In otherwards, the negative feedbacks brought on by allowing the Bush Era Tax Cuts to expire would offset the postive revenue feedbacks of the anticipated revenues.
Again, I don't see this as a stimulus. It is a one time stop gap measure. It's not like the Bush Tax Cuts haven't been in force since Sep of 2008. I do agree with Mr. Krauthammer in that the costs of the unemployment insurance extension (some $120 billion) is difficult to swallow; but I'm not sure where he gets the extra $660 billion from. One can only do that on paper by making the assumption that there would be no negative costs to allowing the Bush Tax Cuts to expire.
I said all along that extending the tax cuts will not in and of themselves jump start the economy and employment. Our financial problems are too great. But it would be very irresponsible if not idiotic to allow the cuts to expure while unemployment is going upward.
This Lame Duck session was never intended to be an auditorium to debate fiscal and tax policiy. There was only one item that had to be dealt with in the short time left in the 111th Congress, and I think the GOP struck about as good as deal as it could expect given its weaknesses.
Why is our government making us servants to China?
We will never be able to buy our way out of this one.
Dig a hole to hide in and learn how to melt down toy soldiers for ammo folks.
I don't understand how NOT changing the rates is a stimulus.
If we let the rates expire then there would be an economic slowdown.
But leaving things the way they are WON'T stimulate the economy. Things will just continue as they are.
But, Obama's now 3 years of paying people not to work will hurt the economy.
Obama's healthcare rules will kill job creation.
The NLRB card-check ruling will kill job creation.
Obama's hyper regulation by EPA, USDA, Dept.of.Transportation, etc,etc will kill job creation.
The
I think Charles Krauthammer is viewing this deal in purely political terms and is not thinking about the real world effects of coming to no deal. I agree with him that President Obama has helped himself politically, but I think Krauthammer has the substantive effects of the deal completely wrong.
(This is only the second time that I can think of where I disagree with him. The first time was on the 2010 Delaware senate GOP primary.)
This deal preserves the status quo ex ante on federal income taxes and is a reasonable compromise on federal death taxes, and federal payroll taxes. Allowing all of the Bush era tax rates to expire would have caused our economy to slow down. This would have caused more unemployment and unemployment/underemployment is our nation's biggest problem.
So if leaving the tax cuts alone won't increase revenue and continuing the unemployment payments prolongs a gov't funded entitlement then I believe Dr. K is correct. I mean, how does this not create even more debt? This deal should have included cuts in Gov't spending equal to the unemployment extensions. What happened to pay as you go? The corner we are painting ourselves into grows ever smaller.
The horror of circumstances in the United States is a testament to Plato's observation of humanity's two primary vices: 1, "power corrupts, and absolute power corrupts, absolutely"; and, 2, "people strive towards aggrandizement with impunity". As long as the United States is run by the unpatriotic economic oligarchy willing to sacrifice a productive manufacturing structure for globalization and corporate profits, the horrors will continue. The political system supports special interests and will continue as such until it is destroyed and rebuilt. It took a little more than 200 years, but the brilliance of the founders has been thwarted by an axis of greed.
Tom Foreman, at CNN.com, asks, "You say you want a Revolution?" External Link
Sadly, I am conviced that the United States is on a path towards violent revolution unless the cancer of greed is removed from the body politic.
Others have made the point that continuing the same tax rates does not cause an increase in borrowing so I won't belabor that point.
The point I want to make is that increasing the national debt does not bring about a stimulus through some flood of Chinese money. The Chinese do not make their investment decisions based on how much our government needs to borrow.
Thanks to 30 years of a forced abortion and draconian one-child-per-family policies, they face an impending demographic crisis that makes the retirement of our babyboomers look like a day at the beach. By 2040, more than half of the Chinese population will be over 70. That's why they buy dollar-denominated debt. They want to cash it in to pay for all their elderly in a couple of decades and, despite recent problems, they still feel that dollar-denominated debt is the safest investment. Notice, there is nothing in this calculation about how much we need to borrow.
If the federal government's budget were balanced, China would still be putting money into our economy, either buying up the existing government debt or corporate bonds. They don't increase their lending out of the goodness of their hearts just because our need to borrow grows.
Pat in NC: to answer your question as to how "leaving things as they are" can have a stimulating effect, consider the following analogous situation: if you work as a contractor, and you know that your contract expires at the end of the year, you are likely change your spending habits as the year end approaches and a new financial reality arrives. If, however, you are able to extend that work contract for another two years, you are much more likely to spend, invest, hire subcontractors etc. until near the end of the new contract. In complete analogy, taxpayers (think small business owners, here) have known for years that the Bush era tax rates are going to expire and increase dramatically at the end of this year (2010) and they have likely modified their investment/hiring/spending decisions accordingly. However, if the government now passes a two year extension of the current tax rates, then those taxpayers know that their rates will stay put for two years, so they can proceed with their desired courses of action (hiring, expanding production, etc.) without fear of a much larger tax bill that makes such action less rewarding.
I am surprised more conservatives aren't coming to the same conclusion. The republicans caved in and went against the "pledge to America" that was made during the election. We had the winning hand and still screwed it up. We still have the old guard in leadership roles... what has to happen before they get it?
Hmm... Maybe I am missing something, but it seems to me the tax deal is a win for the Republicans. The Bush tax cuts preserved and are next due for debate in advance of the 2012 elections. Unemployment benefits are extended, which will keep unemployment high going into the next election. Will be hard for Dems to argue to raise taxes in 2012 and hard for them to win with unemployment still around 9%...
To stimulate: to arouse, activate, excite or spur to action. Mr. Krauthammer - where's the spur?
I find your proposition of equating the continuation of the current tax code as a "stimulus" to be nonsensical - like getting a shot from a doctor with an empty needle.
You also imply that decreasing tax rates decreases tax revenues. I suggest you take a peek at the Heritage Foundation, as well as other economic-literate sites, to learn a bit about the interrelation of tax rates and GDP growth and tax revenues. Sadly, this article simply adds confusion to a confusing subject.
Earth to Kruathammer, earth to Charles.... Obama has been swindling the American public since his candidacy. Obama dupes, conjoles, inveigles, lies, and swindles anyone [democrats or republicans] to get his Kenysian socialist platform in place [czars]. I am still surprised that Charles still hasn't demanded transparency on the enigmatic citizenship of the self-annointed false prophet. What would else would be expect from a swindler?
Dr. K really needs to stop talking about economics. I have a lot of respect for the guy, but as an economist and business owner I consistly cringe whenever he comments on economic policy. He has the same simplistic, one iteration thinking you get from liberal democrats.
If we want to stimulate an economy that suffers from low saving and low investment, perhaps we should start by not punishing savers and rewarding borrowers.
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