Tax Deal Passes: Who Wins and Who Loses?

With a huge bipartisan majority, the House passed Obama's tax compromise plan Thursday evening 277 to 148. 

139 Democrats voted for the measure with only 36 Republicans voting against it.

As a result, Charles Krauthammer said in the Washington Post Friday the GOP made a huge mistake supporting this plan, and that this victory by the President clears the way for his reelection:

If Barack Obama wins reelection in 2012, as is now more likely than not, historians will mark his comeback as beginning on Dec. 6, the day of the Great Tax Cut Deal of 2010. [...]

After the shambles of the election and with no bargaining power - the Republicans could have gotten everything they wanted on the Bush tax cuts retroactively in January without fear of an Obama veto - he walks away with what even Paul Ryan admits was $313 billion in superfluous spending. [...]

 The president is a very smart man. How smart? His comeback is already a year ahead of Clinton's.

Is Krauthammer right or overstating things?

Consider first that Obama has now indeed flip-flopped on a key element of his campaign and his very persona: eliminating the tax cuts for the rich.

Such a flip-flop doomed President George H. W. Bush's reelection efforts, and as can be seen by much of the media's response to this compromise, the Left are as passionate about raising taxes as the Right are about cutting them.

As such, this maneuver mightn't even help Obama if the economy rebounds prior to November 2012.

Before quickly casting that aside, let's assume conditions improve in the coming months, and that by this time next year, unemployment has dropped below nine percent.

To be sure, that would be great news, but would it necessarily help the President?

Regardless of what the economy does, the deficit will certainly be growing by at least $1 trillion per year for the foreseeable future. At some point, Obama is going to have to take a position on what should be done with tax rates that he himself set to expire January 1, 2013.

No matter who the Republican presidential candidates are, it's a metaphysical certitude they will all advocate a permanent extension of these tax rates regardless of how the economy is doing. 

Will Obama? Can you envision the most liberal president in the history of this great nation advocating a further extension of all the Bush tax cuts if the economy is improving and the deficit is over $1 trillion?

The far-left including and George Soros will blow a gasket and likely push for a more progressive candidate to challenge Obama in the primaries.

We've already heard such grumblings from Soros, and this was before the tax compromise. Just imagine what'll be coming from him and his ilk if Obama is advocating a further extension of these rates in 2012 despite a growing economy and in the face of ever-exploding deficits.

Krauthammer is correct when it comes to what the liberal base will do in November 2012: they're not going to vote Republican no matter how upset they are with Obama.

But the President pushing for a further tax rate extension amidst a strong economy and trillion dollar deficits could certainly lead to a primary battle that Obama likely would win, but would emerge from quite damaged. It could even encourage a third party candidate like Ralph Nader to step up to the plate and hurt the Democrat just like in the year 2000. 

On the flipside, if the economy is doing well, and Obama advocates letting some of the tax cuts expire with Republican candidates promising a full extension, Obama could lose the independent support he so desperately needs.

Add it all up, and the decision to put forth a tax plan expiring in 2013 might end up being very harmful to the President even if it works.

On the other hand, let's say it doesn't, and unemployment remains above nine percent. Obama would then have presided over the worst four consecutive employment years since the Great Depression implementing numerous policies - including one totally offensive to his base! - that didn't work.

How does that set him up positively for reelection?

In the past week and a half since this plan was first announced, many conservatives including Krauthammer have said it would have been far better for the GOP to not have compromised thereby allowing the Republicans in the new Congress to put together a more right-leaning package.

What this ignores is that this bill really is Obama's. 

If it fails, he loses.

If it succeeds and he wants it to continue beyond 2012, he loses.

If it succeeds and he wants it to end in 2013, he loses.

And with what happened last Friday, we now have on record two very popular Democrat presidents standing side by side proclaiming to the nation that tax cuts are good for the economy and are more important than balancing the budget when times are tough.

That's a victory beyond anything conservatives could possibly have imagined after losing Congress and the White House in consecutive elections.

Unemployment Taxes Stimulus Budget Economy 2012 Presidential Washington Post Charles Krauthammer
Noel Sheppard's picture