THE BLOG
11/05/2010 12:20 pm ET Updated May 25, 2011

Oops, He Did It Again: Obama Already Caving in to Republicans on Tax Cuts for the Rich

Republican leaders like John Boehner and Mitch McConnell are doubling down on their promises not to compromise an inch with President Obama unless he decides to adopt their policies. Meanwhile President Obama is already signaling that he's prepared to abandon his principles and compromise with Republicans on one of his clearest and mosts unambiguous campaign promises: That he would maintain the Bush tax cuts for the vast majority of Americans, but would return tax rates for the richest 2% of Americans--who made out like bandits during the Bush years--to the level they were under President Clinton.

In his news conference the day after the elections, the New York Times reported that President Obama emphasized "that it was important to extend the tax cuts for the middle class while expressing flexibility by saying he was 'absolutely' willing to negotiate on the matter." The next day Press Secretary Robert Gibbs amplified the point, reiterating that President Obama is open to extending the tax cuts for the richest Americans for at least the next one or two years. "He would be open to having that discussion and open to listening to what the debate is on both sides of that," Gibbs told reporters.

In typical Obama fashion, he's already negotiating against himself. He's telegraphing to Congressional Republicans that he's willing to compromise by agreeing to a several year extension on the tax cuts for the wealthiest Americans, without getting anything in return from the Republicans. That's how he got rolled by the Republicans for the past two years and that's part of why Democrats took such a beating on Tuesday, yet Obama doesn't seem to have learned a thing.

Here's how it works on taxes: When the Bush tax cuts were passed, they were set to expire in 10 years, because otherwise financial projections showed they would blow a hole in future deficits. Now, if Congress doesn't act in the lame duck session, everyone's taxes will go up automatically on January 1, 2011, reverting to where they were before George Bush became President. Of all the campaign promises Obama made, probably the most prominent was that he would extend the Bush Tax cuts on all but the richest 2% of Americans. I remember during the 2008 campaign hearing Obama make that promise at just about every campaign stop. If he keeps that promise, 98% of Americans won't see their income tax rates raised, while the marginal rates on singles with Adjusted Gross Incomes over $200,000 a year and couples with over $250,000 a year will increase 3% from 33% to 36% and marginal rates on everyone with Adjusted Gross Incomes over $384,600 will increase 4.6% from 35% to 39.6%.

Keep in mind that under Eisenhower, the top marginal rates were 90% and have been coming down every since. And keep in mind that for the past 30 years the percentage of income going to the richest Americans has dramatically increased compared to the percentage going to the middle and working classes. As Jacob Hacker and Paul Pierson point out in their important new book Winner Take All Politics,

"Consider the astonishing statistics. From 1979 until the eve of the Great Recession, the top one percent received 36 percent of all gains in household income...Economic growth was even more skewed between 2001 and 2005, during which the share of income gains going to the top one percent was over 53 percent. That's right: More than 50 cents of every dollar in additional income pocketed by Americans over this half decade accrued to the richest 1 in 100 households.

Even more striking, the top 0.1 percent--one out of every thousand households--received over 20 percent of all after-tax income gains between 1979 and 2005, compared with 13.5 percent enjoyed by the bottom 60 percent of households. If the total income growth of these years were a pie, in other words, the slice enjoyed by roughly 300,000 people in the top tenth of 1 percent would be half again as large as the slice enjoyed by the roughly 180 million in the bottom 60 percent. Little wonder that the share of Americans who see the United States as divided between the 'haves' and 'have nots' has risen sharply over the past two decades."

The richest Americans are enjoying a bigger and bigger percentage of the nation's wealth and the middle class a lesser and lesser percentage. Republicans want to give these same richest Americans a tax cut they don't need, and Obama, despite his campaign promises, seems prepared to go along with it, at least part of the way.

Moreover, extending the Bush tax cuts on the richest 2% would increase the deficit by approximately $600 billion over the next 10 years. But for all their talk of an electoral mandate to slash the deficit, Republicans don't care about the deficit when it comes to tax cuts for the rich. Now Obama is conveying the message that he's willing to go along with the Republicans, at least for the next few years. Of course, then they'll accuse him of increasing deficits and demand cuts in things like unemployment benefits, student loans, social security, and Medicare to make up for it.

What's the alternative? For the first time in his Presidency, Obama could draw a principled line in the sand. He could announce that he intends to keep the promise he ran for President on--He'll sign a bill that extends the tax cuts for 98% of Americans but he'll veto any bill that puts us deeper in debt by extending it for the richest 2% who don't need it. And if Republicans filibuster a tax cut for 98% of Americans because it doesn't include the richest 2%, Obama can tell the American people that it's the Republicans who are raising their taxes. If Obama really stands firm for 98% of Americans, as he promised, are Republicans really ready to go down fighting for the richest 2%. And if they are, who's going to end up more popular with the voters?

If Obama won't put up a fight on his keystone campaign promise, when will he ever put up a fight? And if he won't fight for the interests of 98% of Americans, why should they reelect him?

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UPDATE: While I don't want to exagrerate the meaning of one blog like this on a major progressive website, the number and ferocity of the comments below should serve as a warning to the Obama White House that caving in and compromising on his signature campaign promise of returning the tax rates of the wealthiest 2% to where they were under President Clinton could be, as Sen. Jim DeMint presciently warned about HCR, the Waterloo for Obama's second two years.

In nearly 4 years as a regular contributor to the Huffington Post, I've never received so many impassioned comments so fast as I have to this blog, over 700 within a day after being posted. Like most sets of comments, they range from the sublime to the ridiculous, the brilliant to the idiotic. But the majority express intelligent disgust at the possibility of Obama caving to Republicans on tax cuts for the wealthy and serious warnings of now much harder it will be for Obama to rally support in 2012 than it was even in 2010 if he caves in.

Obama probably lost the 2010 elections for Democrats when he started out compromising by offering too small a stimulus package, too loaded with tax cuts, in order to appease a handful of "moderate" Republicans. While several million jobs were probably saved, unemployment still lingered near 10% as the 2010 elections approached and Republicans convinced a majority of voters that the stimulus was a failure and a waste of their taxes. Obama could have, instead, proposed a big enough stimulus to have worked--in the order of $1.4 trillion--and fought like hell for it. Even if, in the end, only a smaller stimulus could garner the votes of Snowe and Specter to break a fillibuster, Obama could then have blamed high unemployment on Republicans for blocking an adequate stimulus, instead of trying to defend anemic economic growth and continued high unemployment as "progress". Moreover, Obama's backroom compromises on health care reform--deals with big Pharma to block Medicare from negotiating for lower drug prices and Americans from buying cheaper drugs from Canada, deals with for-private hospitals to kill the popular public option, abandonment of his campaign promise that there would be no mandate forcing uninsured adults to buy unaffordable private insurance--compounded the problem and indeed made DeMint's warning that HCR would be Obama's Waterloo a reality.

Just as failure to fight for an adequate stimulus package, and backroom deals on HCR with the for-profit healthcare industry, were the Waterloo of Obama's first two years, failure to fight for his promise of tax cuts for the middle class and small tax increases for the wealthy, coupled with preemptive compromise with Republicans to extend tax cuts for the top 2% without even getting anything in return, would be likely to become the Waterloo of his second two years. (Eric Cantor just went on the Sunday talk shows to reject any compromise, making clear that the only thing acceptable to Congressional Republicans is permanent extension of all of the Bush tax cuts including those for the top 2%, even if an impasse means a government shutdown, which he said would be Obama's fault. Meanwhile a recent Gallup poll found that only 37% of Americans favor keeping all the tax cuts, 44% want to keep them for those making less than $250k and end them for those making more, and 15% want to let all the Bush tax cuts expire. But then over 60% supported the public option and Obama dealt it away.)

I know some staffer in the White House monitors The Huffington Post, since last year the White House called a Huffington Post editor to protest one of my blogs about back-room deals to kill the public option, and ask that part of it be changed. I hope that staffer takes this blog and the hundreds of comments below as a warning of trouble to come if Presidend Obama compromises on his keystone campaign promise, and conveys it up the White House ladder.