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.