A Strategic Capitulation

by Deacon Blues

Given Barack Obama’s history as a negotiator while in the White House, I’m not surprised that David Axelrod has already signaled a capitulation on extending all the Bush tax cuts temporarily. Others would rightly say that you can't give away a chip like that without getting something for it, but this White House has no real idea how to negotiate anything, and it’s clear the Obama and Axelrod did this with the next two years in mind, as well as the 2012 elections.

There’s an economic case to be made for extending the tax cuts through the remainder of Obama’s term: the economy is way too weak and consumer spending already way too depressed to raise income taxes upon the middle classes right now. Sure, the wealthy can afford a return to the Clinton-era rates, but Axelrod knew the GOP leadership would never agree to a middle class extension without getting one for the wealthy as well. What Obama wanted above all else was an extension of the middle class tax cuts.

There is also a political argument for doing this. Obama wants to take the tax issue off the table at the start of the new Congress, and deprive the GOP of oxygen on the issue. With the Deficit Reduction Commission report to come out soon, and with the other report coming next week from the former Senate Budget Committee chairs, Axelrod and Obama may have decided it was better to lock in tax stability and certainty now and make the next two years a debate about spending and tax priorities rather than the usual “Democrats want to raise your taxes” drivel from the GOP. Democrats are in a stronger position to have this bigger debate in the overall context of trade-offs, keeping the focus on how the GOP/Tea Party’s plans can’t work and are unpopular with the voters. Obama can now frame this debate around what tough choices need to be made during the next two years and implemented as the tax cut extension expires.

Lastly, Obama has a stronger hand than the GOP wants to admit. A major post-elect poll shows that the public wanted the tax cuts extended for now, but more importantly, they are also against repealing health care reform (HCR). Instead, as other polls have shown, there is public support for leaving HCR alone or improving it, but less support for repealing it. Notably, two-thirds of independents want HCR preserved or strengthened.

Axelrod wants the GOP to focus its energy on bashing Obama and pushing for repeal, because he knows that the public will turn on the GOP if they do and ignore jobs, a repeal effort will ultimately be futile, and the industry doesn’t want repeal. The bigger priority for the GOP was to have a debate on Obama and taxes, and Obama has taken the tax club away from the GOP at the start of the new Congress, and shielded the 2012 Democratic Senate incumbents from attack in doing so. He has the support to push back against a HCR repeal while making the next two years about forcing the GOP to confront their own rhetoric and be accountable for it with the public. What Axelrod and Obama have done with the decision to extend the tax cuts is to start the 2012 campaign now.