Thursday, December 9, 2010

Obama's Tax Deal

President Obama and Republicans have come to a tentative deal to extend Bush tax cuts for all families, even the wealthiest for two years. As part of the deal, unemployment compensation will be extended for 13 months as well.

I think this is a decent outcome. I have posted before about how I think extending the tax cuts for a specified period of time would be good. At a time when the economy is shedding jobs, there is no question that leaving more capital out there to invest in businesses might lead to more jobs. Providing needy families with more unemployment compensation is the humane thing to do. People worried about losing their unemployment compensation will have trouble paying for the basics like food and utilities. Anything that makes their lives a bit easier as they search for jobs in a terrible economy is something an enlightened, moral society like ours should consider.

Some have said that there will be political consequences for Obama for endorsing this deal. I have a hard time seeing them though. Given Republican unwillingness to extend taxes for the middle class unless all tax cuts were extended, Obama would have to contend with charges that he pushed through the largest tax increase on the middle class during at a time the middle class is reeling. This could hardly have done his reelection bid any good. Any explanation that Republicans are to blame will be lost in the shuffle. The average voter will see that Democrats were in control of both the White House and Congress when the tax increases happened. These voters will take their wrath out on Democrats.

Moreover, it is still unlikely that liberals will challenge Obama in the primaries for a few reasons. First, Obama still maintains strong support among Democrats (over 80%). It is hard to see how a challenger will be able to get enough support to have a realistic shot at the nomination. Second, a liberal challenge would make it more likely for a Republican to win in the general election if it were to actually gain traction. Ronald Reagan in 1976, Ted Kennedy in 1980, and Pat Buchanan in 1992 all dealt serious blows to the incumbent and helped someone of the opposite party win. Do liberals really want a President Palin or a President Romney? They may not like the deal, but they surely do not like the idea of a Republican President.

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