Paul Nitze: Why the president blinked
December 8, 2010
It was always going to be like this. There was no rabbit for the president to pull out of a hat. No deal on the Bush tax cuts he could strike now would conform to the vision he laid out on the campaign trail or as recently as a few weeks ago.
So if you’re disappointed that the president has now signed up for another two years of the most regressive, fiscally reckless tax policy in at least a couple of generations, join the club. You’re in the company of a majority of House and Senate Democrats, who’ve set up the deal struck by Vice President Biden and Sen. Mitch McConnell for a nasty fight in Congress. Not that they’ll ultimately block it.
Back in 2001, I remember marching through the numbers on the original bill. It felt like a punch in the gut back then, and it doesn’t feel any better now. It wasn’t the dollar figures that stung; it was percentage cuts by income bracket. The Bush tax cuts gave working families a net federal tax break of 3 or 4 percent, but doubled that number for the top bracket.
Every last break for the top bracket was included in this package. After a Wall Street bailout that sparked popular outrage the likes of which we haven’t seen in nearly a century, the White House couldn’t even close the loophole on carried interest. Hedge funds, private equity and venture capital will still pay a grotesquely undeserved 15 percent tax on income.
To add insult to injury, the president caved on the estate tax and included, letter for letter, the bill sponsored by Sen. Kyl. That bill includes a $5 million individual exemption, which is perfectly reasonable. An exemption that big shields all but a handful of estates from paying any taxes whatsoever. The insult comes with the new 35 percent rate above the exemption, which turbo-charges wealth inequality and undercuts the single most progressive tax in the federal system.
In his videotaped message to Organizing for America, also known as the liberal base, the president compared this deal to health care. Don’t let the perfect be the enemy of the good, he argued, and don’t let the Republicans hold middle-class pocketbooks hostage.
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But that analogy doesn’t hold. Even without the public option, the health care bill sets the stage for a sea change in how we provide medical services. It takes us in the direction of universal coverage and, farther down the road, a centralized approach to controlling costs. In contrast, the deal that was struck on tax cuts perpetuates a rate structure that is fundamentally unfair.
For all that, those on the left who are busily sharpening their pitchforks need to answer a couple of questions. The first is what they would do to put the economy back on its feet after another horrible set of jobs numbers. Many of the same critics of any compromise on tax cuts are also hard-core Keynsians. They argue, with some reason, that the first stimulus package wasn’t big enough.
If you believe that, then the so-called “refundable” portion of this deal is nothing to sneeze at. In particular, the 2 percent cut in the payroll tax rate through 2011 is just about the best option on the table for juicing growth. No less than half of the cost of the deal will go toward short-term economic stimulus. And the 40,000 or so Coloradans who otherwise would have lost their unemployment benefits will be back on the rolls.
The second question the left needs to answer is whom they want to see in the White House in 2013 – the current occupant or, say, Mitt Romney? If you’re wondering why a raft of liberal policy analysts support the compromise, like Bob Greenstein and John Podesta, it’s because they know that the best hope for an Obama victory in two years lies with a sharply improving economic outlook.
A showdown that forced the expiration of all of the tax cuts would guarantee that unemployment stays flat or rises for the next two years. And that is not the field that Dems want to be playing on during the next cycle. One way to view this package is as a job creation package for one man – Barack Obama. Cynical as that may be, how do you feel about the alternative?
Looming in the background of all of this is the federal debt. Interest rates rose on news of the compromise, and that’s surely a harbinger of more to come. Tough choices have been deferred by Washington yet again.
Those on the left who hoped for a showdown so that they could take the measure of the president were left wanting. Without preparing the electorate in advance, he had no leverage to win concessions this time around. If he uses the bully pulpit regularly for the next two years he just might regain the advantage for round two.
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