The Tax Deal’s Consequences

December 13, 2010, 3:06 PM

Charles Krauthammer says the Democrats came out ahead:

Barack Obama won the great tax-cut showdown of 2010 – and House Democrats don’t have a clue that he did. In the deal struck this week, the president negotiated the biggest stimulus in American history, larger than his $814 billion 2009 stimulus package. It will pump a trillion borrowed Chinese dollars into the U.S. economy over the next two years – which just happen to be the two years of the run-up to the next presidential election. This is a defeat?

… Obama is no fool. While getting Republicans to boost his own reelection chances, he gets them to make a mockery of their newfound, second-chance, post-Bush, Tea-Party, this-time-we’re-serious persona of debt-averse fiscal responsibility.

Chris Caldwell says the Republicans did:

The trap that Mr Obama’s angry partisans espy is that events will impose some serious gesture of deficit reduction on the new Congress. There are two ways to balance budgets: Democrats would prefer to assess government’s responsibilities, and then raise taxes to fund them. Republicans would rather measure government revenues, and then slash programmes those revenues do not cover. Mr Obama’s short-term deal makes it more likely that the long-term equilibration of income and outgoings will be done on Republican terms.

I have absolutely no idea who’s right. (It probably depends, like so many things, on the unemployment rate 12 months from now and beyond.) But in either case, the way the deal was initially greeted by partisans on both sides — on the left as a horrible sell-out, and on the right as a big, tax cut-vindicating victory — probably makes any kind of “equilibration of income and outgoings” considerably less likely in the short term. The left-wing angst means that for the first time in his presidency, Barack Obama has to worry about liberal disaffection on a significant scale, which makes it hard to imagine him alienating his base still further by taking another plunge into bipartisanship and accepting entitlement cuts before the 2012 election. (A prediction: In the unlikely event that Obama makes a deal to means-test Social Security in the next 12 months, he will face a primary challenger in 2012.) At the same time, the right-wing elation means that the Republican Party, which was just beginning to tiptoe toward accepting some of the hard choices associated with budget-balancing — led by Tom Coburn, the subject of my column today — now sees itself as having taken liberals to the woodshed on taxes, which will probably disincline Republicans to accept painful compromises in the short term as well. (They forced Democrats to cave once, the theory will go, so why not just force them to cave again …?)

Add it up, and both the White House and the G.O.P. have newfound political incentives to postpone any deficit compromise until after 2012 — at which point Obama will either have a freer hand to cut unpleasant deals with the opposition, or else the balance of power will have shifted decisively in favor of conservatism.