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Penn Political Review

One Year to Rule Them All: Obama’s Tax Deal in 2011

Urja Mittal January 15, 2011 Soapbox Blog Comments Off

Welcoming and warning the new Congress in the new year, University President Amy Gutmann and Harvard professor Dennis Thompson recently called for increased political compromise in light of bipartisan outrage over President Barack Obama’s tax deal. According to Gutmann and Thompson, the recent retreat away from the principles of political compromise is a result of lawmakers’ permanent campaigning. They explained that if legislators focused more on governance, by analyzing and promoting better policies, and fixated less on analyzing the effects of those policies on their past promises or future prospects, more progress would be possible. “Compared to the realistic alternatives, does the compromise promote the principles of both sides better than the status quo?” ask Gutmann and Thompson. For December’s tax deal, given its deadline and circumstances, the answer was yes. As it ameliorated the status quo, the tax deal, imperfect as it may have been, was a practical and admirable undertaking by Obama and Congress.

But the status quo is constantly in flux and policies to improve upon it must be developed accordingly. Liberals fear that the short-term tax deal was a precursor to a long-term reinstatement of tax cuts for the rich, an indelible return of Reaganomics and the end of the liberal promise for the next few election cycles. Fortunately for Obama’s campaign team and unfortunately for Senator Mitch McConnell’s (R-Kentucky) new Congressional coalition, this perception will remain a hypothetical fear if the appropriate steps are taken to improve the status quo.

In the coming year, lawmakers on both sides of the aisle must work together to either eliminate or considerably reduce the Bush-era tax cuts for the wealthy. As Robert Reich, former Secretary of Labor under President Bill Clinton, points out, the Bush-era tax cuts echo failed supply-side Reaganomics — the idea that the rich will spend their extra cash, supplying the economy with much-needed investment, while the government trims discretionary spending. As in the 1980s, both are untrue and impractical today. First, with the tax deal’s extension of unemployment insurance — a “second economic stimulus” — the deficit is still increasing. That’s not to say that Obama is not working to rein in the ballooning U.S. debt, but that this bill does not work toward that particular goal. Similarly illusory is the notion that the rich will spend the money that they save on taxes. Diane Lim Rogers predicts that at best (the worst being increased savings and foreign investment), the rich will use the restored income to pay down their debts — reducing their negative savings — and not to boost aggregate demand.

Yes, this is exactly what liberals were clamoring for in December. But with an end-of-year deadline and lack of liberal political maneuverability, Obama’s tax deal was the only way out. It was also the only compromise on the table to work with. Now, with an extended deadline of approximately a year, liberals have the time to negotiate legislative bargains and gain ground toward reducing or eliminating the tax cuts for the rich by 2012. Last month’s tax deal was shaped by the time constraints of 2010 but now that those limitations have passed, a refined compromise can be achieved.

But a more ideal compromise than December’s deal will require more hard work. A complicated and difficult type of understanding will be on order, one that dictates that even if a liberal doesn’t understand his fellow conservative lawmaker, he should understand the need to respect the other’s position and integrate it into a joint resolution. Obama’s tax deal gifts the 112th Congress 2011 — one year of time that lawmakers must take advantage of.  The president did his job — not formulating detailed policy, but rather, leading the direction of American politics. Obama held lawmakers’ hands and walked them to the field of political compromise: Now it’s time for Congress to march forward on its own.

Photograph courtesy of alancleaver_2000 on Flickr.

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About The Author

Urja Mittal is a junior studying political science and economics in the College of Arts and Sciences and finance in the Wharton School.

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