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Tax cut deal sets up ideological battle for 2012 election

President Barack Obama and Senate Republican Leader Mitch McConnell, R-Ky., right, shook hands after the tax cut deal was agreed upon last week, but the issue will stay alive the next two years and could be a factor in the 2012 election.

Associated Press

President Barack Obama and Senate Republican Leader Mitch McConnell, R-Ky., right, shook hands after the tax cut deal was agreed upon last week, but the issue will stay alive the next two years and could be a factor in the 2012 election.

WASHINGTON — In order to enact sweeping tax cuts nine years ago, President George W. Bush had to let them expire Dec. 31 of this year. But a good thing is hard to give up.

"We knew that, politically, once you get it into law, it becomes almost impossible to remove it," Dan Bartlett, Bush's former communications director, recently told the online magazine Daily Beast. "The fact that we were able to lay the trap does feel pretty good."

True enough, President Barack Obama found it impossible to follow through on a campaign promise to eliminate tax cuts for the wealthy. Last week, he signed into law an $858 billion deal extending the entire package for two years — effectively kicking the can, a very expensive one, down the road.

Now Obama, who insists he'll still seek to eliminate the breaks, has set another trap that will go off at the height of his re-election campaign. Who it bites is a drama yet to be written, but both sides are gearing up for a classic ideological battle.

"Democrats always think they can win these fights but they never do," said John Feehery, a GOP strategist and former senior House aide. "Republicans are like Lucy pulling that football away from Charlie Brown."

Feehery agrees, though, that the outcome will hinge on the economy. If the situation is brighter, Obama's willingness to work with Republicans may prove an asset with voters, particularly independents who fled Democrats in November.

Obama may be able then to make the argument that the rich should not continue to benefit from tax cuts. He campaigned in 2008 on eliminating the breaks for individuals earning more than $200,000 and families earning more than $250,000.

Then came the midterm elections that turned control of the House to Republicans and cut the Democratic majority in the Senate. Weakened, Obama decided to cut a deal. Extending the tax cuts to everyone makes up more than $544 billion of the overall package, about $81.5 billion of which is attributable to the highest income families.

Collectively, the tax cuts will add another $374.1 billion to this year's expected $1 trillion deficit and $422.9 billion next year, according to government estimates. Concern over deficits has grown, but the economy remains the more powerful issue.

"Clearly Obama could not let an across-the-board tax rise go into effect on Jan. 1," said Stephen Hess, a congressional expert with the centrist-liberal Brookings Institution. "But two years from now perhaps the Democrats will finally figure out how to turn a tax on millionaires into a good populist issue."

But if unemployment persists, pressure could grow to extend the tax cuts for everyone.

Already, one of Obama's possible challengers, Mitt Romney, is making that case and trying to set himself apart from other potential GOP candidates who voted for the deal. Romney contends the tax cuts are critical for long-term economic growth.

Republicans have been attacking the president for spending but sidestepped the fiscal effect of the tax cuts by attacking them as a "tax increase," and seem prepared to continue that line of attack going into the election.

The midterm election, however, may complicate things with the wave of tea party-backed Republicans entering Congress with a stated desire to cut spending and address the debt.

There was some Republican opposition to the deal, particularly in the House, but it was mild compared to what it may have been had the issue spilled over to next year.

Obama seems to be counting on the new climate to ease his argument. And he has called for a deep overhaul of the tax code to eliminate an array of exemptions and deductions, to broaden the tax base and lower some rates.

In the meantime, Obama defends the compromise as necessary in a tough economy and pointed to other provisions he secured, including a 13-month extension of unemployment benefits for 7 million Americans.

"Look at what I promised during the campaign," Obama said during a Dec. 7 news conference. "There's not a single thing that I've said that I would do that I have not either done or tried to do. And if I haven't gotten it done yet, I'm still trying to do it.

"And so to my Democratic friends, what I'd suggest is, let's make sure that we understand this is a long game. This is not a short game. And to my Republican friends, I would suggest — I think this is a good agreement, because I know that they're swallowing some things that they don't like as well, and I'm looking forward to seeing them on the field of competition over the next two years."

Still, some Democrats fear it will be tough to pare back the tax cuts in an election year. Rep. Anthony Weiner, a liberal lawmaker from New York, said Republicans showed they were "better poker players" than Democrats.

Sen. Bernie Sanders, I-Vt., was more blunt in an 8 ½-hour filibuster: "We are caving on this issue."

(Both of Florida's senators — Democrat Bill Nelson and Republican George LeMieux — voted for the deal, while expressing reservations about the effect on the debt.)

As they took up the legislation, Democrats kept an eye on 2012 and forced their rivals into voting against measures to only cut off tax cuts for the rich.

"I'm going to be here for the next year, next two years, to remind my colleagues that they were willing to increase the deficit $300 billion to give tax breaks to people who have income over a million dollars," said Sen. Chuck Schumer, D-N.Y.

Whether that sticks is another matter. Others are more hopeful that the tax debate will give way to more serious discussion about the budget and debt.

"It's a debate our country has to have," said Dave Beattie, a Democratic pollster in Florida. "Forcing it in a presidential year is going to make it central. Both sides have a chance to make the case to the American people."

Times researcher Natalie Watson contributed to this report.

Tax cut deal sets up ideological battle for 2012 election 12/20/10 [Last modified: Monday, December 20, 2010 9:59pm]
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