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Why Obama Won’t Make a Tax Deal

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.

Despite all the posing and polarization of recent weeks, everyone in Washington knows that Republicans and Democrats will reach some big agreement on tax rates within the next four or five months. So if compromise is ultimately inevitable, why wouldn’t President Obama take the lead in brokering that deal before the election, grabbing credit for averting disaster and saving the country from plunging over the dreaded “fiscal cliff”?

The question becomes even more pointed in light of the president’s experience in December 2010, when he enjoyed a sharp bump in public approval ratings after he joined congressional Republicans and Democrats in extending Bush-era tax rates for another two years. Though he condemned GOP tactics as “hostage taking,” he won applause from nearly every quarter for sparing the economy the shock of a sharp tax hike when the recovery remained fragile and tentative.

That recovery looks even more feeble today—with GDP growth projected by the Federal Reserve as less than 2 percent for all of 2012, compared to 4.2 percent in 2010. Why, then, would the president insist on subjecting the American people to the same automatic and disastrous across-the-board tax hikes he acted to avoid two years ago, rather than acceding to the one-year tax freeze for everyone that the Republicans demand?

And why wouldn’t the president act immediately to distance himself from extraordinary remarks by one of his chief congressional allies, Sen. Patty Murray of Washington, who blithely declared that she and her colleagues would continue to block any resolution of the deadlock until after higher tax rates for every household mechanically kick in on Jan. 1, 2013? In an address to the Brookings Institution—an address which John McCain denounced on my radio show as “one of the most irresponsible speeches I’ve ever heard in this town, and I’ve heard a lot!”—Senator Murray announced, “I will absolutely continue this debate into 2013.” Never mind that numbers from the Tax Policy Center of that same Brookings Institution show a median-income family immediately facing more than $1,700 a year in additional tax payments, or that both Ben Bernanke and the Congressional Budget Office have warned repeatedly that this huge, instantaneous withdrawal of money from the private economy would almost certainly push the nation toward a new recession. Senator Murray promises she’s willing to take the risk because of the perceived likelihood that the widespread suffering could enable her to score ideological points against her Republican opponents.

“If middle-class families start seeing more money coming out of their paychecks next year, are Republicans really going to stand up and fight for new tax cuts for the rich?” she demanded. “I think they know this would be an untenable position.”

Of course, her analysis presumes that the Democrats will win a sweeping victory in November, with continued control of the Senate and another term for Barack Obama.

If, on the other hand, the GOP wins the Senate, or the White House, or both, it’s hard to imagine that Democrats in the lame-duck session of Congress after the election will hold fast to their odd position that it’s better to force tax increases on everybody than to authorize a continued freeze in tax rates for everybody. If the Democrats have just lost a hard-fought election in which most Americans ignored their ardent pleas for increasing taxes on the wealthy, how could they claim a mandate for an all-or-nothing lame-duck strategy to compel the very tax hikes the voters had just rejected?

Meanwhile, polling on the subject shows a closely divided electorate: the right situation to encourage compromise on both sides, not rule-or-ruin intransigence. A McClatchy-Marist Poll on July 9-11 reported a majority (52 percent) preferring that “Congress should extend the tax cuts for everyone, including households earning $250,000 or more” and only 43 percent asking our leaders to “extend the tax cuts only for the middle class, but not for households earning $250,000 or more. “Even groups generally aligned with the Democrats—like younger voters, Latinos, and working-class whites—preferred the GOP approach (extending tax rates for all) to the Obama plan (raising taxes for the top 2 percent).

Another survey (from Pew Research Center on July 12-15) brought better news for Democrats but still showed deep divisions on the issue. It’s true 44 percent agreed that “raising taxes on income over $250,000 would help the economy” but a slightly larger group (46 percent) thought this sort of increase would either “hurt” or “make no difference.”

The uncertainties of the electorate make it ever more questionable for President Obama to go along, even temporarily, with the Murray plan for inflicting universal pain in order to gain a parochial advantage. If he wins the election, he won’t want the beginning of his second term clouded by an unnecessary and paralyzing tax crisis brought about by his own unwillingness or inability to settle the matter in timely fashion during the last congressional session.

If, on the other hand, he falls to Mitt Romney, he would risk selection for a place of dishonor in the Sore Losers Hall of Shame if he allowed his personal resentment to force a universal tax increase that would afflict the nation on Jan. 1, less than three weeks before he relinquished power. Yes, it’s possible that a defeated Obama might feel embittered enough that he’d lose all affection for the electorate that rejected him, but he would hardly lose the robust affection for himself that seems to have animated so much of his career.

If Obama faces defeat in 2012, he could begin almost immediately in plotting a vengeful comeback for 2016 or even 2020—when he’d still be only 59, younger than Mitt Romney is today. Nothing in the Constitution would prevent him from “pulling a Grover”—imitating Grover Cleveland (who served as president from 1885–89, and then again from 1893–97) and wining nonconsecutive terms. Barack Obama’s durable hold on the African-American voters who play such a decisive role in Democratic primaries would make him a formidable candidate for his party’s nomination at any time he chose to seek it.

But rather than speculating on some future return to power four years, or eight years, after sustaining a 2012 loss, the president should do whatever he possibly can to secure victory in this cycle. And certainly an agreement before the election to protect every taxpayer from punishing hikes could help his November cause.

Why would he shun the same sort of self-serving and, arguably, nation-serving tax deal he brokered two years ago—especially when Republicans express open willingness to go along with “revenue increases” primarily from the rich by shrinking their loopholes if not raising their rates?

In part, the president may fear that any form of compromise would undermine his anti-Romney talking points in three basic areas.

First, a last minute deal to keep tax rates frozen could be interpreted as a tacit admission on his part that the economy remained weak and vulnerable, long after he had promised a robust recovery.

Second, he might find it increasingly difficult to blame the “disastrous policies of George W. Bush” for all the nation’s ills if he kept the Bush tax rates totally unchanged not only during his first four years, but during the first year (at least) of the second term he craves.

And finally, he would have to abandon his current campaign theme that the fundamental cause of our economic breakdown was that rich guys (like princely plutocrat Mitt Romney) paid the government too little of their money in taxes. One of the president’s campaign ads, in fact, states baldly that “Mitt Romney isn’t the solution. He’s the problem.” But if the Obama administration does nothing to fix that problem in the course of his entire first term—to demand the payment of additional taxes from the wealthiest households—then he surrenders on his favorite mantra of insisting that the rich pay “their fair share.”

For liberal purists, connoisseurs of ideological argument, and Washington insiders, these potential problems might militate against a pre-election deal, but most American voters care far more about real-world results and the appearance of comity. They elected Barack Obama with the hope that he could keep his promise to transcend partisan bickering, so it’s profoundly uncomfortable that he now seems personally paralyzed by the petty squabbles.

If Senator Murray and her colleagues continue to threaten “taxmageddon” as a political strategy, the president will need to separate himself from their cynical manipulations before the threatened rate increases become a reality across the country. Of course, he could help himself and the nation most substantially were he to pull back from his demanding schedule of celebrity fundraisers and spend more time negotiating with Congress for a pre-election settlement. Leftist dead-enders may enjoy the prospect of inflicting damage and pain on the economy in order to blame Republicans and force their surrender next year, but the great American middle class would share none of the joy and endure the great bulk of the damage and pain.

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