Here we go again (as Obama capitulates….)

For a micro-second, there was hope.  John Boehner seemed to offer something in the spirit of compromise.  More importantly, newly re-elected President Obama had leverage — if the Republicans did not cooperate with him, a massive tax increase would fall on ALL Americans, and he could easily hold the Republicans to blame.

But this situation has now been reversed with amazing speed.  Parsing Speaker Boehner’s words carefully, it is clear there was no spirit of compromise in those words at all, just spin.  What Boehner said is that he would accept revenue increases if they involved reform of the tax system.  That of course is a code for LOWERING tax rates.  The principle is quite simple:  We lower tax rates, especially on the rich, not so much on everyone else.  We then assume this action will result in doubling GDP growth (ideology tell us it must be so).  The doubling of GDP growth will, given that most people have had only minor tax cuts, result in higher tax revenues.  Voila — lower taxes on the rich = increased tax revenues.  That is the Republican dream.

Of course it is a fantasy, and has been proven so many times in the past.  George HW Bush and Bill Clinton did not raise taxes because it was popular, they did so because it was necessary to balance the budget.  If they could have balanced the budget by lowering tax rates they would have done that.  But both the Republican and Democratic presidents of the 1990 faced reality.

So the best chance that Obama had to force the Republicans to moderate their stance was to wield the sword of Damocles of the looming tax increases hanging over the heads of all Americans.

But guess what — today President Obama undertook another pre-emptive retreat (this is typical of his bargaining strategy).  He offered to eliminate the pending tax increase on all Americans earning under $250,000.  For — (wait for it) — absolutely nothing.  He offered this just to reduce uncertainty and gain good will.

Isn’t that a wonderful way to negotiate?  Cave first and hope the opponent will be so impressed they compromise later?   But it doesn’t work that way with this crowd.  They are not like pets where if you move back they follow.  These are attack dogs and if you give them an opening they will bellow for more.

I’m glad we can take the taxes off the table.  But I worry that simply empowers the Republicans to create the next crisis with more confidence that Obama will fold.

 

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About jackgoldstone

Hazel Professor of Public Policy at George Mason University
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One Response to Here we go again (as Obama capitulates….)

  1. david says:

    ?

    “Obama said a lot of uncertainty about the fiscal cliff would be removed if Congress allowed tax relief for 98 per cent of American taxpayers – those earning under 250,000 dollars a year – to continue into 2013.

    “Let’s not wait even as we are negotiating a broader spending package,” he said. “That would give 98 per cent of Americans and 97 per cent of small businesses the certainty they need going into the new year.”

    Obama pointed out that the Democratic-led Senate had already passed a bill to freeze income tax rates on income below 250,000 dollars: “All we need is action from the House. I’ve got the pen ready to sign. I’m ready to do it.”

    Obama said he would not sign would not such a measure if it extends the rate freeze on income above 250,000 dollars a year. ”

    Under? Above?

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