Obama's Not Just Compromising, He's Capitulating to Republicans on Tax Breaks

Democrats can step back and allow tax rates to reset to late 1990s levels. Or they can let the government grind to a standstill as Republicans fight to help billionaires.

When Barack Obama walked out of last week's meeting with Mitch McConnell and John Boehner and started talking about developing a "productive" working relationship with Republican Congressional leaders who have sworn the political equivalent of a blood oath to destroy his presidency, it was clear that the president planned to abandon his many years of advocacy for ending Bush-era tax breaks for millionaires.

Now, with the lame-duck session of a Congress still entirely controlled by Democrats races toward a earlier-than-expected conclusion, the deal is being cut.

Obama's representatives -- Treasury Secretary Tim Geithner and White House budget director Jack Lew -- have reportedly entered the final stages of a negotiation with the Republican team of Arizona Senator Jon Kyl and Michigan Congressman Dave Camp to extend all Bush tax cuts for for at least two years.

In return, federal unemployment benefits will be extended for up to one year.

The only remaining sticking point has to do with the question of whether to offer a small tax credit for working Americans -- the "Make Work Pay" provision -- and a tax credit for students, both of which were developed as part of the 2009 economic stimulus package. Remarkably, Republican negotiators who are going to the mat to defend $140 billion in tax breaks for the wealthiest 2 percent of Americansare objecting to maintaining $70 million in tax credits for the other 98 percent.

This negotiation is not headed toward a compromise. It is headed toward a complete capitulation.

The argument will be made that Obama and the Democrats had to fold in order to secure an extension of unemployment benefits.

But the political, fiscal and logical calculus does not add up.

Let's begin with the politics:

As draconian as the new Republican leadership may be, the fact is that a substantial portions of the current Republican caucuses in the House and Senate -- and even larger portions of the incoming Republican caucuses in both chambers -- represent states where unemployment is rising. For decades, Democrats have known how to pressure Republicans from New England states such as Maine, Masschusetts and New Hampshire, as well as GOP representatives and senators from Pennsylvania, Ohio, Indiana, Michigan and other Great Lakes states, to back extensions of unemployment benefits. Nothing has changed, except that the unemployment rate is now higher than at any point in decades -- and that the hurt has extended to states such as Nevada, where more Republican votes should be available for the picking.

In other words, there is no political argument for compromise in order to extend unemployment benefits. Democrats could win this fight, in the current Congress and in the next one. To think otherwise is to presume that Republicans are not politicians who, when everything else is said and done, will cast the necessary votes to secure their re-election.

Now to the fiscal calculus:

Minnesota Congressman Keith Ellison, the new co-chair of the Congressional Progressive Caucus, is right when he says that it is "dumb" to imagine that the federal government can maintain tax breaks for millionaires and achieve deficit reduction. Giving away $700 billion in tax revenues from the wealthiest Americans over the next decade while at the same time talking about deficit reduction is the fiscal equivalent of imagining that it is possible to keep "eating chocolate layer cake everyday while losing 40 pounds."

That won't happen.

By any measure, the Democrats have the upper hand in the fiscal responsibility argument. If they barter it away now, they will lose not just the current fight but back themselves into a corner as pressure rises to respond to the "cut-cut-cut" mantra of the co-chairs of the president's deficit commission -- Republican Alan Simpson and Democrat Erskine Bowles -- whose most draconian spending-cut arguments are already being adapted by Republicans such as incoming House Budget Committee chair Paul Ryan, R-Wisconsin.

If President Obama and Congressional Democrats want to maintain the resources that will be necessary to protect Social Security and Medicare, fund education programs, invest in infrastructure and prevent state and local governments across the country from slipping into bankruptcy, they have to find streams of revenue. A failiure to do so will assure that the narrative for the next two years is written by conservative think tanks that have as their primary purpose the deconstruction of the New Deal and Great Society programs that have been in their targets for generations.

Which brings us to the logical calculus:

The overwhelming majority of Americans favor ending tax breaks for the wealthiest Americans while maintaining them for working Americans.

The overwhelming majority is, as well, supportive of extending unemployment benefits.

Democrats actually have the people behind them. If ever there was a time for President Obama to use the bully pulpit and pressure the Republicans to compromise, this is it.

Senator Tom Harkin, D-Iowa, one of the savviest members of the Congress over the past three decades, is right when he says that Democrats have viable options. They can simply step back and allow tax rates to reset to where they were during the boom years of the late 1990s. Or, says Harkin, they can let the government grind to a standstill as Republicans fight to help billionaires.

“They’re willing to shut the government down in order to get tax breaks for the wealthy," Harkin says of GOP senators. "I say let them do it."

It's an easy play. And this is the time to do it -- when the political and fiscal battlelines are being defined in the aftermath of the 2010 midterm elections.

If the Obama administration and Democratic Congressional leaders are unwilling to make a stand, then a logical question presents itself: when will they fight?

John Nichols is The Nation's Washington correspondent.
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