Bush Tax Cuts: The Fight Obama Can't Ignore

11/19/2010 04:17 pm ET | Updated May 25, 2011
  • Alexander Stille San Paolo Professor of International Journalism, Columbia University

Predictions are risky but I am prepared to make one. If the Democrats cave in to Republican demands to extend the Bush tax cuts permanently for all income groups, including for the two richest percent, President Barack Obama and the Democrats will lose in 2012. And, arguably, they will deserve to lose.

Ask yourself this question: what would Ronald Reagan have done, after losing a midterm election, had he been presented with an ambitious piece of Democratic legislation -- universal health care say? Obviously, he would have vetoed it. So, why do Democrats feel they must compromise to appease the Republican delegation in Congress?

Seemingly lost in this discussion is a full recognition of what we are talking about. The Bush tax cuts were the centerpiece of the economic policy of George W. Bush, a policy that was an abject failure. They cost $3 trillion over eight years, were the biggest single item of domestic policy and are one of the largest contributors to the current budget deficit about which the Republicans claim to care. This massive tax cut, justified in the name of economic stimulus and job creation, failed miserably in its intent.

The Bush administration created a total of only three million jobs, the lowest total in modern history and a fraction of the 23 million created under the eight years of Bill Clinton's administration. And that was before the economy collapsed. Needless to say, almost all of the relatively meager growth that did occur was enjoyed almost entirely by the wealthiest few. Two-thirds of all income gains between 2002 and 2007 went to the richest one percent who, thanks, to President Bush, got to keep even more of it.

And now we are talking about making a policy that is morally, economically and politically indefensible the centerpiece of the economic policy of a Democratic president. At a cost of $4 trillion over ten years, it will cost more than twice as much as Obamas economic stimulus bill ($789 billion) or his health care plan (an estimated $950) combined.

Many Democrats are apparently operating on the assumptions that after the shellacking they took in the midterm elections, they must look to compromise. They seem to forget that President Obama has already offered what is an enormous compromise: extending the tax cut for families earning less than $250,000, which covers all but the richest two percent of earners. This is itself a huge concession: extending the tax cuts for 98 percent of Americans will cost $140 billion per year.

This compromise position is, in fact, extremely popular. Recent polling shows that some 55 percent of voters support extending the tax cut for the bottom 98 percent while only 37 percent favor extending it to all voters, regardless of income. It is an issue that the Democrats should welcome as a means of drawing a clear line between themselves and the Republicans: the party of the bottom 98 percent against the party of the top two percent.

The Democrats feel that they need to show that they can work with a new Republican majority in the House and cannot afford a bloody fight at this time. Obama and the Democrats, in fact, need to regain the political initiative. The Republicans, despite having taken an even bigger shellacking in the 2008 elections, took the political offensive and have had Obama and the Democrats on their heels for most of the past two years. Picking a fight on an issue they believe in may be just what the Democrats need right now.

After letting Republicans define the issues as they have during the last two years, it is an opportunity for the Democrats to define an important issue in ways that are favorable to them. Moreover, they need to remember that they actually hold the upper hand. They have the presidency and the Senate and if they let the Republican majority in the house call the tune, they lose the respect of even more voters than they already have. If we are going to get an essentially Republican economic policy why not simply elect a Republican president? Obama has the power singlehandedly to veto the Bush tax cuts if they are passed by Congress and then force the Republicans to refuse to pass the Obama compromise for 98 percent of earners. Very simply, Democrats don't need to do this.

Senator Charles Schumer of New York has suggested the possibilities of either raising the upper limit for the tax cut from $250,000 to $1 million or extending the cuts for everyone for another three years. These are very poor ideas. People earning several hundred thousand dollars a year don't need a tax cut. Extending the cuts for the wealthy for another three years is exactly what the Republicans are hoping for: as soon as they win in 2012 they will make them permanent. Policies like this that are allowed to stay on the books year after year come to seem like rights that should never be taken away.

There is, of course, a possibility that the gambit I am proposing may not work. But it is possible that nothing they may do may work. If the economy doesn't recover, if the voters mood stays ugly, the Democrats probably will lose. But I am fairly sure that passing the Bush tax cuts will bring defeat. So why not lose fighting for what you know is right? In the end, voters respect people who have the courage of their convictions. The Republicans are prepared to go to the mat for the richest two percent. Why wouldn't the Democrats go to the mat for the other 98 percent?

Many pundits and many Republicans are pointing to Bill Clinton's ability to work with the Republican Congress elected after the 1994 midterm elections. But the moment that swung momentum away from the Republicans and back to the Democrats was when Bill Clinton refused to accede to Republican threats and Speaker of the House Newt Gingrich tried to shut down the government. It was Gingrich's downfall. The moment when I knew Obama would win the 2008 election is when he refused to give in to John McCain's preposterous demand that they cancel a presidential debate in order to deal with the financial meltdown on Wall Street. Showing cool and grit, Obama refused and McCain ended up losing a lot of credibility.

Again, ask yourself: would Reagan have vetoed a bill that he thought was bad even though a Democratic congress had passed it?

Alexander Stille is the San Paolo Professor of International Journalism at the Graduate School of Journalism at Columbia University. He is the author of several books including, most recently, The Sack of Rome: Media + Money + Celebrity = Power = Silvio Berlusconi.