Daniel L. Feldman

Obama’s Tax-Cut Compromise — Revisited

In National Politics, Policy on December 29, 2010 at 10:36 pm

The 2010 lame-duck Congress enacted legislation ending “don’t ask – don’t tell” as well as the Zadroga bill for health-care benefits for 9/11 first responders.  The Senate approved the New Start arms-reduction treaty with Russia. All of this happened after, and because of Obama’s acceptance of Republican conditions on the tax-cut extender. Those conditions included full extension of the millionaires’/billionaires’ tax cuts and radical reductions in the estate tax. The first three legislative victories, along with the “good” parts of the tax-cut compromise itself, like the extension of unemployment benefits, caused some to reconsider their disapproval of Obama’s tax-cut concessions.

Those subsequent legislative victories deserved commendation on the merits and clearly helped Obama politically.  The collapse of Obama’s resistance on the tax issues, though, enabled the Republicans to continue their (no doubt unwitting) infusion of slow-acting poison into America’s future.

Far-sighted American political leadership instituted the estate tax to limit the establishment of a permanent upper class.  If enormous wealth can be inherited with only minor tax reductions, the wealthiest class of Americans will be dominated by the same families for generations. This will stall the convection currents that have historically kept the United States an icon of socio-economic mobility. Our ethos of socio-economic mobility inspired the kind of entrepreneurial dynamism that gave the country its innovative and free-wheeling character.

Thus, Obama’s acquiescence in the emasculation of the estate tax carried serious long-term costs for the future of the American character.

The President’s acceptance of the full tax-cut extension has even more obvious long-term costs. As Andrew Bacevich has explained, the United States has for some years followed an unsustainable path of budgetary excess. The housing bubble was more a symptom than a cause of the financial crisis. In 2008, then-Republican presidential candidate John McCain said the “fundamentals of our economy are strong.” http://thinkprogress.org/2008/08/20/mccain-econ-strong/ The housing bubble and the financial crisis actually reflect the damage wrought by decades of economic unsustainability: too much spending, too little tax revenue.

For the United States to recover from its deeper economic ills, Americans have to accept budgetary discipline. If the nation’s political leadership cannot even impose a reasonable tax levy on its richest citizens, how can it credibly ask the middle class to accept such elements of fiscal discipline as, for example, limitations on the mortgage interest tax deduction? Or any other kind of economic sacrifice?           

I don’t want to end the year on such a downbeat, though. I hope I’ve made it clear that the Obama compromise accomplished some useful things. Though they are, in my view, relatively short-term gains, perhaps they will lead to a “revolution of rising expectations.” I am referring to the theory that a practical basis for hope can lead the public to demand further significant advances. If so, I will be delighted to have been proven wrong. Happy new year.

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