Thursday, December 9, 2010

Obama's Deal with Jon Kyl

Obama is a politician, and that's why he's made an estate tax deal with Jon Kyl in return for Kyl's support for ratifying the START treaty.

As Senator Chuck Schumer has suggested, the Democratic party would probably benefit by allowing the Bush era tax cuts to expire, but this is not what Obama is proposing because he has something up his sleeve.

Consider if Democrats allowed the Bush tax cuts to expire. People would be angry for a few days, but then come 2011, Democrats would be in a better bargaining position to play chicken with Republicans. Democrats would then be able to dare Republicans to stand against tax cuts for the middle class just so that these tax cuts could also be extended to the rich. Democrats are likely to win with themselves framed as the defenders of middle-class tax cuts, and not, as they are now, opponents of tax cuts for the rich.

Consider if Democrats insist on getting a deal before the year ends. Then Republican obstructionism becomes more powerful, and Democrats are more likely to have to blink in a game of chicken. Republicans today are wisely saying that the tax cuts should be extended, and it is not they who are obstructionist, but Democrats. This frame is so powerful that even majority public opinion, which is against the extension of the tax cuts for the rich, has been massaged into oblivion.

In American politics, whoever looks obstructionist ends up looking worst. Right now, it is the Democrats who appear obstructionist, and the frame is in the Republicans' favor. After the tax cuts expire, it would be Republicans who would look obstructionist, and the frame would be in Democrats' favor. Put another way: whatever passes in Congress next year would then be called the Obama tax cuts, not the Bush tax cuts and the Democrats would have begun to take back control of the tax issue from the Republicans.

So most Democrats are not in a hurry to pass the tax cuts - that is why they waited so late to even consider the issue, even though they have known for a decade that the Bush tax cuts will expire this year. Indeed, the only reason why Democrats are considering the issue now at the 11th hour is because the president is caving in to Republican requests to do so, for a reason that is entirely his own. This reason is much less noble, and entirely political.

It's about START. Obama is ceding ground on the tax cuts because he doesn't really get much credit for revising the tax regime. Other Democrats will share the accolade, and whatever benefits that redound to the economy will come slow and in the future. But if he gets something passed on foreign policy, the benefits accrue almost entirely to him, immediately. For a president worried that unemployment may still be around 9 percent in 2012, a foreign policy achievement would be the fitting antidote.

Who's against START? Senator Jon Kyl. And who was it that struck a deal with Obama about lowering the estate tax exemption to 3.5 million per individual (and not 5 million) and the tax rate to 35 percent (and not 45 percent), much to the chagrin of House Democrats? Senator Jon Kyl. Indeed, House Democrats are so outraged about this particular provision that they are refusing to even vote on the compromise bill until it is revised. This is the political deal of the year if ever there was a hustle. And it would appear, from the House's defiance, that some congressional Democrats are not pleased that the president has sold them out.

Is Obama's commitment to START about national security? In part but not entirely, because the deal with the Russians was made as far back as April this year. The administration had all year to hurry the process up; but it was only after the mid-term "shellacking" that they realized that they better try to achieve something while they can because the next two years look very bleak indeed in terms of securing a positive presidential report card. The political gurus in the White House decided that this was a winnable issue and that it is better to secure something in the bag for which the president could take full credit for than to fight another drawn-out legislative battle (as health-care reform was) for a potential political gain that would have to be shared and diluted among fellow congressional Democrats.

Most Democrats are still giving Obama the benefit of the doubt that he is with them and not for himself, but this deal with Kyl will put this faith to serious test.

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