President Obama must decide this fall whether to confront not just
congressional Republicans but a growing number of Democrats on a key
matter of public policy – President George W. Bush’s tax cuts for those
at the top.
His decision will have enormous implications for fiscal policy, with
hundreds of billions of dollars in potential deficit savings at stake.
It will also have a profound impact on Obama’s future relations with
Capitol Hill.
For Obama, however, the issue is even bigger. Here’s the question (a
version of which every president eventually faces):
Will Obama draw a line in the sand that he will not cross, making
clear what he supports and what he does not in this crucial election
year, regardless of the consequences?
The nation’s leading newspapers (New
York Times,
Washington Post,
and Wall Street
Journal) in the last two days have focused mostly on the
debate brewing in Congress. Republican lawmakers uniformly favor
permanently extending all of President Bush’s tax cuts from 2001 and
2003, which are due to expire at the end of 2010, while many Democrats
would let the tax cuts expire for the wealthiest Americans.
Obama’s decision-making has received less attention. But, he has the
power to bend the issue to his liking, depending on how he plays his
cards.
Obama’s policy is clear: he has proposed extending the tax cuts for
those making up to $250,000 a year and letting them expire for the 2
percent of taxpayers above that level. Treasury Secretary Timothy
Geithner, Obama’s lead spokesperson on the issue, has reiterated that
stance in recent days.
But the economic recovery remains weak and a growing number of
moderate Democrats, such as Senate Budget Committee Chairman Kent
Conrad, say that, this fall, they want to extend all of the Bush tax
cuts at least temporarily, avoiding a tax increase on anyone that, they
believe, would threaten the economy.
Liberals, however, fear that if this Congress extends all of the tax
cuts for, say, a year or two this fall as part of a bipartisan deal to
avoid a Republican filibuster, they won’t be able to stop the next
Congress, which will probably have many more Republicans in it, from
making them all permanent.
With far more than the 40 votes needed to block legislation in the
Senate, Republicans in the next Congress will insist that a bill to make
tax cuts permanent for everyone up to $250,000, as the White House and most Democrats will push, be extended to make all
of the tax cuts permanent.
But the debate need not get that far. This fall, the President can
dig in his heels, making clear to Republicans and to Democrats like
Conrad that he simply won’t sign legislation to extend tax cuts for
those at the top – even if it’s part of a larger bill to extend tax cuts
to the other 98 percent of Americans.
He can say that, with deficits and debt due to explode in the coming
years, we simply can’t afford to extend tax cuts for those who don’t
need them. Moreover, extending tax cuts for those at the top won’t help
the economy anyway because the well-to-do would likely save rather than
spend the money.
The president can argue that if lawmakers believe the economy needs
another short-term jolt of fiscal stimulus, he would be happy to work
with them to apply the short-term savings from denying an extension of
the tax cuts to the wealthiest Americans to more effective stimulus
measures, as former Federal Reserve Vice Chairman Alan Blinder recently
advocated.
Presidents face these moments from time to time – moments when they
must oppose not only the "loyal opposition" but members of their own
party, moments when the Oval Office is a lonely place indeed.
President Truman faced it over Israel, when his legendary Secretary
of State, George C. Marshall, and most of his foreign policy team argued
strenuously that he should not recognize the new state, which he did
anyway shortly after its creation.
President Johnson faced it over civil rights and Vietnam, both of
which opened fissures within the Democratic party that would pave the
way for Republican victories for years to come in once-safe Democratic
areas.
President George W. Bush faced it over Iraq, when growing numbers of
members within his own party began to echo Democratic calls to retreat
before he ignored them and sent more troops to quell the chaos.
History has treated Truman well over Israel, and Johnson well over
civil rights. The jury is out for Bush over Iraq.
It’s gut-check time for Obama. History can wait. The world will soon
see whether he feels strongly about who should get more tax cuts and who
should not.
Copyright The Fiscal Times 2010
