THE BLOG
01/01/2013 04:43 pm ET Updated Mar 03, 2013

Obama's Bad Deal and Worse Negotiating

I hate to burst the balloon of a New Year's celebration for an apparently bipartisan deal to avoid the badly misnamed "fiscal cliff," but far from affirming a progressive victory in the 2012 elections, which should have protected the legacy of the New Deal for future generations, the deal permanently bakes in Republican "starve the beast" tax levels that enshrine massive economic inequality and will quickly force President Obama and Congressional Democrats to agree to cuts in benefits for Social Security, Medicare, Medicaid, student loans, veterans benefits and other social programs that protect the middle class.

Flush with his election victory, President Obama started the negotiations asking for $1.6 trillion in tax increases over the next decade and promising he would never negotiate over threats to hold the global economy hostage to increasing the debt ceiling. He quickly caved and agreed to $600 billion in tax increases while enshrining a large part of George W. Bush's tax and estate tax cuts permanently into law.

At the same time, he agreed that the sequester of $1 trillion in spending cuts would be postponed to coincide with the deadline for raising the debt ceiling, transferring his negotiating leverage to Republicans who, despite Obama's protestations to the contrary, will use it to force significant cuts to "entitlements" and social programs for the poor and middle class while protecting the wealth of the top 0.5 percent.

Obama either proved that he the world's worst poker player, or just as likely, that his campaign promises to protect the poor and middle class were not very serious and he really wants his legacy to be a not very grand bargain that exchanges small increases in taxes on the richest Americans for large cuts to social programs for the poor and middle class.

This deal to make George W. Bush's "temporary" tax cuts permanent for everyone making less than $450,000 and protecting low taxes on inherited wealth just wasn't necessary. Obama had all the negotiating leverage and he gave it away. If there were no deal now and all the Bush Tax cut automatically expired on all Americans, financial markets would have tanked, and within a week or two, Obama would have forced Congress to fulfill his campaign pledge to raise taxes to Clinton-era levels on everyone making over $250,000 a year.

By agreeing to move the tax increases only to those making over $250,000 Obama gave away about $200 billion in revenues that could have helped to pay for social programs. In a political vacuum, an argument can be made that's a viable political compromise, particularly since he got temporary extensions to unemployment benefits and tax breaks for the poor in exchange for permanent tax breaks for the rich.

But by easily compromising on his central campaign promise that he claimed was a line in the sand, Obama signaled to Republicans that there's nothing he won't compromise on. He may say now that he won't negotiate cuts in entitlements and social programs for an increase in the debt ceiling, but there's not a single Republican who will believe him. This January 1 fiscal cliff never posed a long-term danger. But when Republicans took it hostage, Obama caved in on taxes with barely a fight.

Failing to raise the debt ceiling does pose a long-term danger to the global economy.

Republicans learned again that when dealing with President Obama, hostage taking works. It will only embolden them to take the debt ceiling hostage again, knowing full well that Obama will cave on his promises to defend Social Security, Medicare, Medicaid and other social programs that protect the middle class and the poor.

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