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Robert Kuttner

Robert Kuttner

Posted: December 19, 2010 07:41 PM

On signing the tax-cut deal December 17, President Obama jubilantly declared "We are here with some good news for the American people this holiday season. This is progress and that's what they sent us here to achieve." So how have Republicans repaid Obama's willingness to meet them three-quarters of the way?

Bipartisanship evidently lasted about as long as the signing ceremony.

First Republicans refused to approve the routine stop-gap bill to keep the government funded at current levels pending the budget resolution and next round of appropriations. They killed the DREAM Act, for decent treatment of well-behaved children of undocumented immigrants. Repeal of Don't Ask Don't Tell squeaked through the senate with the votes of a few socially moderate Republicans defying their leadership.

The Republicans on the Financial Crisis Inquiry Commission, in a massive denial of reality, issued their own separate report, denying that the financial collapse had anything to do with deregulation or speculation. Coming along next is a set of Republican demands in the budget resolution for much deeper cutting of public outlay.

So it's clear that "bipartisanship," even on heavily Republican terms, produces no follow-through and no reciprocity. This is bipartisanship in the spirit of Neville Chamberlain. You give, and immediately they are after you for more.

It is astonishing how the Beltway echo-chamber, most egregiously the editorial page and news columns of the Washington Post (hard to tell the difference), thinks this deal is good for the Republic. The Post has become a cheerleader for policies that fail to cure the economy and show off Obama as a weakling waiting to be rolled again.

The tax deal, re-branded as a stimulus program, is paltry and ineffective as economic tonic. What hardly anyone seems to have grasped is that the deal basically continues the status quo with almost no stimulus.

If the tax rates on the books in 2010 did not produce a recovery, why should we expect that the very same rates will change the economy in 2011?

The deal not only continues 2010 income tax rates into 2011 and 2012. It actually increases estate taxes slightly, since estate taxes lapsed entirely for one year in 2010.

It also basically continues current unemployment benefits. Even the temporary 2-point tax break on Social Security taxes is a substitute for a more progressive and effective Obama tax break from the original stimulus of February 2009 that the Republicans refused to extend -- the Making Work Pay tax credit.

About the only new stimulus in the bill is a business tax break that increases the value of tax write-offs for new investment, valued at about $55 billion.

Does anyone seriously believe that a $55 billion net tax cut in a $15 trillion economy will have more than trivial effect?

Using Congressional Budget Office estimates of GDP growth, the deal might produce as many as two million jobs if businesses respond by investing more and consumers feel more confident about increasing their spending. Lovely, but the economy is currently short at least fifteen million jobs.

The small stimulus effect will soon be undermined by the spending cuts that are already the Republicans' next demand. Even the stopgap spending measure to continue spending next year at this year's levels, which Republicans just blocked, is already a cut when you factor in inflation. Deeper spending cuts, about to be imposed by incoming Republican House leaders, will overwhelm any stimulus effect of the tax deal.

Obama, according to well-placed sources, plans to introduce a "tax-simplification" scheme in the State of the Union address -- get rid of tax preferences and lower tax rates, as proposed by the Bowles-Simpson commission, with no net stimulative effect. This is a classic case of trying to change the subject. This might or might not be sensible policy depending on the specifics. But what ails the economy has little to do with the particulars of the tax code.

I don't understand how Obama's political advisers think this formula can produce his re-election. The tax deal was popular at a superficial level. Voters, when asked about the deal in a vacuum, apart from other economic issues, approve of bipartisan cooperation and they like tax relief when nothing else is on offer. (In that context, it's noteworthy that the one part of the tax deal that respondents to the ABC-Washington Post poll did not like was the temporary cut in payroll taxes. The vast majority of Americans don't want to weaken Social Security, even when the bait is tax relief.)

But such polls tell us nothing about the President's prospects for 2012. The 2010 off-year election was the second largest swing away from the incumbent party in the past 130 years (1930 produced a slightly worse swing against the Republicans), according to the political scientist Walter Dean Burnham. It was the worst mid-year swing against the Democrats ever.

Ground Zero of this disastrous defeat was the Midwest. This is hardly surprising, because the working middle class in the industrial heartland, which provisionally voted for Obama in 2008, is facing devastation in states like Ohio, Pennsylvania, Michigan, Wisconsin and Minnesota. The 2010 swing there was huge. Without carrying the heartland of the Midwest, Obama does not stand a prayer of re-election, even if the broad public says it approves of his bipartisanship.

But bipartisanship to what end? There is simply no way that the combination of upwardly tilted and puny tax breaks, spending cuts, and a re-jiggering of tax rates and loopholes is going to make a serious dent in either unemployment rates or underwater housing values in the Midwest.

Joblessness and losses of household assets in these states will continue at depression levels, even if the national unemployment comes down modestly.

Obama and his advisers are left with the vain hope that Republicans will nominate someone so lunatic that Obama will somehow squeak through. But be careful what you wish for. I vividly remember 1980, when some Democrats cheered the nomination of Ronald Reagan because he was too rightwing to get elected.

The watershed year 2008 was a political moment when an incoming Democratic president had all the raw material for a dramatic break with the old order -- when Republicans, Wall Street, and laissez-faire ideology were primed to take a richly deserved fall for the economic collapse.

Obama chose not to pursue that course. Instead, he identified himself with reviving Wall Street and pursued a feckless bipartisanship and a feeble recovery program.

Last spring, Obama and his aides were on the road assuring everyone that the administration's economic program would produce a "Recovery Summer," which never came. Now, Obama is repeating the mistake. Adviser Larry Summers' valedictory message is that the even weaker tonic of the tax deal will somehow restore economic jobs and growth. Crying recovery, when recovery doesn't come, is even riskier than crying wolf.

Six months from now, when the economy is still in the doldrums, either Obama or some other Democrat had better stand up for a real economic recovery program -- or no Republican will be too grizzly to be elected president in 2012.

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos.

His latest book is A Presidency in Peril.