Obama Caving Before the Eleventh Hour

By Jonathan Chait, New York Magazine

31 December 12

he discouraging thing about the “fiscal cliff” negotiations is not that they have gone into the eleventh hour, or that they may go into the new year, or even that they won’t resolve the long-term budget deficit. It’s that President Obama has retreated on his hard line on taxes. In the months before the election, and in the weeks after his victory, Obama had a clear position: The Bush tax cuts for income over $250,000 were ending. He would not sign any extension, and if Republicans refused to extend tax cuts for income below that level, he would hold them responsible for it until they did.

Now, by all accounts, Obama is prepared to extend the Bush tax cuts up to $400,000 a year. Or maybe more. As of Friday, Obama had told Republicans they could have the tax cuts extended on income up to $400,000 if they would accept the estate tax rising from its Bush-set rates. As of last night, Democrats were conceding the estate tax plus the higher exemption on tax rates, which had risen to $450,000. And Republicans still hadn’t agreed to it! Why would they, when Democrats keep hurling money at them? By midnight, Republicans might be getting the Saturday Night Live version of Obama’s offer (“a 1% raise on the top two Americans – just two people”).

The erosion signals not only a major substantive problem in its own right, but it also raises disturbing questions about Obama’s ability to handle his entire second term agenda.

To begin with, the $250,000 a year threshold was too high to begin with. Obama may have needed to make the promise in order to insulate himself against suspicions of raising taxes on the middle class, but confining all future revenue to the richest 2% of the population left made it difficult to fund the government at an adequate level. Ending the tax cuts over that level would raise about $800 billion over a decade. Preserving all income under $400,000 a year would give back a quarter of that revenue.

The odd thing about the retreat is that Republicans had all but conceded eventual defeat on the issue. For a month after the election, Republicans gloomily debated amongst themselves whether to strike some kind of deal with Obama to secure spending cuts in exchange for the tax hikes that were certain to occur, or whether to simply wait until January to extend the tax cuts on income under $250,000. Obama insisted not only publicly but privately that he would not bend on taxes, reportedly telling John Boehner that the $800 billion from the expiration of tax cuts on income over $250,000 was his, “for free,” and not something he had to negotiate for.

Republicans moaned and wailed about Obama’s irrational hatred of the rich or desire to humiliate them, but none of them questioned his determination to end the Bush tax cuts over his proscribed level. The House was preparing elaborate tactics, such as voting for two different bills, to prepare the groundwork for surrender on the Bush tax cuts over Obama’s line. The notion that Republicans might push the line higher seemed utterly fanciful. Now it is simply a fact that all sides take for granted.

What happened? The administration’s line seems to be that Senate Democrats undercut, or were going to undercut, Obama’s position. “They worry that if we go over the fiscal cliff, skittish Senate Democrats will quickly fold before some House-passed plan that raises taxes on income over $750,000, does nothing on stimulus, and sets up a debt-ceiling fight for early next year,” wrote Ezra Klein, reporting the administration’s thinking. “The White House thinks it’ll be very difficult for them to veto anything Senate Democrats agree to, and so they would prefer to strike the deal themselves rather than getting into a situation where vulnerable Senate Democrats could strike a deal on their behalf.”

via Obama Caving Before the Eleventh Hour.