Despite appearances, the US President won the last great tax fight with the Republicans

Opinion Article

2012 December, 28

Two years ago, I wrote that the question of who had played who in the great tax standoff of late 2010 between US President Barack Obama and the congressional Republicans was the most fascinating political question of the year. 

After the Democrats endured what Obama called a shellacking at the mid-term elections, the Republicans held the whip-hand as the Bush tax cuts would cease at the end of December. 

While the Democrats wanted to preserve middle-class tax cuts, they opposed the extension of the tax cuts to the wealthy legislated by George W. Bush 10 years earlier. 

Progressives and Democrats hounded Obama to take the fight to the Republicans. Commentators from The New York Times disparaged the President as suffering from Stockholm syndrome, held hostage and rendered impotent by his Republican captors. 

Then Obama announced the deal extending the tax cuts for the middle class and the wealthy for a further two years, plus a raft of measures that amounted to stimulus. 

They included a massive payroll tax holiday, investment breaks and an extension of unemployment insurance. 

Obama was castigated for having capitulated to the Tea Party-infused Republicans. 

The Congressional Black Caucus and even New York senator Chuck Schumer vented their disappointment at the extension of the tax cuts to the wealthy. 

It is this extension that is now up with the approaching fiscal cliff. We will see what happens now that Obama has won a resounding second term and holds, if not a whip-hand, then much more than during the lame-duck session leading into Christmas 2010. I am interested in revisiting the question of who won the great tax-cut standoff last time around. 

At the time, the conventional view from Right and Left was that the Republicans had won. 

I was more impressed with the analysis of conservative commentator Charles Krauthammer in The Washington Post, who called Obama's deal with the Republicans the "swindle of the year". 

Krauthammer declared: "Barack Obama won the great tax-cut showdown of 2010 - and house Democrats don't have a clue that he did. In the deal struck this week, the President negotiated the biggest stimulus in American history, larger than his $US814 billion 2009 stimulus package. It will pump a trillion borrowed Chinese dollars into the US economy over the next two years - which just happen to be the two years of the run-up to the next presidential election. This is a defeat?" 

Krauthammer goes on: "If Obama had asked for a second stimulus directly, he would have been laughed out of town. Stimulus I was so reviled that the Democrats banished the word from their lexicon throughout the 2010 campaign. 

"And yet, despite a very weak post-election hand, Obama got the Republicans to offer to increase spending and cut taxes by $990bn over two years. 

"Two-thirds of that is above and beyond extension of the Bush tax cuts but includes such urgent national necessities as windmill subsidies." 

And further: "Obama is no fool. While getting Republicans to boost his own re-election chances, he gets them to make a mockery of their new-found, second-chance, post-Bush, Tea-Party, thistime-we're-serious persona of debt-averse fiscal responsibility." 

Former president Bill Clinton, referring to Krauthammer's analysis, said: "He's a brilliant man." 

Two years later, it is now even apparent to liberal commentators that Krauthammer called it right. Last month, David Corn from Mother Jones pointed out that not only had Obama succeeded in getting a second stimulus package passed by congress, but by not getting into a knock-em-down-drag-em-out fight over tax with the Republicans, he was able to get other legislation through such as the repeal of Don't Ask, Don't Tell laws pertaining to gays in the military, and the DREAM immigration law reforms. 

Corn writes: "In policy terms, Obama clearly had gotten the better deal. The trouble was that the political world and the public had been conditioned to see this episode as primarily a clash over the top-tier tax cuts - and on that Obama had not gotten what he wanted. Consequently, the media depicted the compromise as a loss for Obama, and progressive Democrats squawked mightily about the continuation of the tax cuts." 

Matthew Ygelsias of Slate calls it a triumph: "Whatever formal leverage [the President] had two years ago still exists today, except now he gets to play that leverage from a somewhat stronger economic and political context. It's totally solid legislative deal-making and not any kind of cave-in or surrender. 

"Corn says the real problem with the deal was that Obama didn't adequately frame it this way, but that seems to be a core part of the deal. To get a favourable deal, Obama had to downplay the extent to which he hadn't given anything up." 

The Krauthammer-Clinton analysis never displaced the conventional view, and Obama did not seek to correct that view. 

He risked the disappointment of his supporters by maintaining the stance that he had lost the 2010 tax fight, but instead he had laid the foundations for victory in 2012. 

If this President is not Lyndon Johnson or even Bill Clinton, he may be canny enough to take Clinton's counsel when it matters.

Despite appearances, the US President won the last great tax fight with the Republicans