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Rewriting History – James Kwak, The Baseline Scenario

This is a syndicated repost published with the permission of The Baseline Scenario. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

By James Kwak

This morning Matt Yglesias wrote a post arguing that the December 2010 tax cut was an Obama victory. By the time this evening that I finally found time to figure out what annoyed me about it, I had to go to the second page of his blog to find it, since he had posted so much in the interim. That man sure can write.

I’m not so sure about his memory, though. Yglesias says Obama won because he got the (Bush) middle-class tax cuts extended along with some other goodies like a payroll tax cut and extended unemployment benefits, and all he had to give up was an extension of the (Bush) upper-income tax cuts. The reason people think it was not a good deal, he says, was that “to get a favorable deal Obama had to downplay the extent to which he hadn’t given anything up.”

That certainly wasn’t the line the administration was taking at the time. Remember Austan Goolsbee’s YouTube video? Or the “we got more than they did” slide that the White House was passing out to anyone who would listen? The administration was busily arguing that, in the race to see who got more of “their” tax cuts, the Democrats had won.

But this cleverly ignores the fact that Republicans like all tax cuts. Sure, they like to cut capital gains taxes for the rich more than the like child tax credits for the poor—but still, it was George W. Bush who expanded those child tax credits! As I said at the time:

“If you’re Grover Norquist and what you want more than anything else is lower tax revenue, you should be celebrating like it’s Christmas and your birthday at the same time. We had an argument where one side wanted tax cuts A, the other side wanted tax cuts B, and they compromised by adding tax cuts C?”

And sure, Republicans want some tax cuts (lower income tax rates) to be permanent, and they don’t want other tax cuts (lower payroll tax rates) to be permanent. But that doesn’t mean they’ll say no to two years of lower payroll taxes, since when you’re trying to starve the beast, every morsel you can snatch out of its hungry jaws helps. For Norquist, that’s not a concession—it’s an extra dessert sent out by the chef, on the house.

Does any of this mean anything for today? Whether Obama is a good or a bad negotiator is of secondary importance. What really matters is what he wants. What Obama showed two years ago, and what he has maintained ever since, is that his top priority is extending the Bush tax cuts for the “middle class.” (“Middle class” should always be in quotation marks because (a) Obama’s plan would maintain tax cuts up to about $300,000 in gross income* per household and (b) people who make more will still benefit from the tax cuts on the first $300,000 of their income.)

That is more important to him than protecting social insurance programs. We know that since he’s been willing to offer major concessions on that front (e.g., changing the COLA formula for Social Security) in the past. We also know that since the Bush tax cuts—most of which Obama wants to keep—are precisely what is creating the revenue shortfall that puts Medicare at risk. That worries me more than whether or not he is a good negotiator.

* The commonly advertised number is $250,000, but that is before indexing and after deductions and exemptions.

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