The primary economic debate between now and the election will concern the tax reductions of 2001 and 2003 -- President Bush's economic stimulus -- which are due to expire on Dec. 31 unless Congress acts. Obama has proposed to eliminate the portion of that stimulus that goes to wealthier taxpayers. Republicans oppose any tax increases in a feeble economy. The result is a high-stakes game of chicken, with just a few possible outcomes.
First, Democrats might break a Senate filibuster by persuading some Republicans to support an extension of Bush's tax cuts for the middle class but not the wealthy. Momentum, however, runs in the other direction. Republicans are unlikely to give the president a legislative victory immediately before the midterm election, particularly one that increases taxes. And two Democratic senators, Kent Conrad of North Carolina and Evan Bayh of Indiana, have expressed support for at least a temporary extension of all the Bush tax cuts.
Second, Democrats and Republicans could agree to a temporary extension, deferring a decision on tax increases until the economy strengthens. But this would be a major loss for the administration -- the abandonment of a long-standing promise to repeal the Bush tax cuts for the rich.
Third, there could be a standoff, resulting in the expiration of all the Bush tax cuts -- for the middle class as well as the wealthy -- thus kicking an economy that is struggling to rise.
The problem for Obama is this: Even his best outcome in this political struggle would have little to do with job creation. An economist might argue that the resources used to extend tax reductions for the wealthy would have quicker simulative effect if given instead to the poor, who save a smaller share of each dollar they receive. But Obama's tax increase on the rich would be used to reduce the deficit, resulting in a net contraction of economic activity. Tax increases to pay for past spending do not stimulate the economy.
So Democrats are left with a stark choice between soaking the rich and stimulating the economy. And Obama's message of jobs, jobs, jobs, once again, is bound to stray.