Tax Cut Deal Shows Obama Has to Work With GOP

Washington is buzzing about the tax deal President Barack Obama and congressional leaders announced late Monday.

At its core, the deal as presented would extend almost all the current tax rates for two years, bring the death tax back at 35 percent with a $5 million exemption rather than 55 percent and, in a new wrinkle, enact a temporary 2 percent reduction in the payroll tax. It also allows for the extension of unemployment benefits through the end of 2011.

[Read 10 Things You Didn't Know About the Bush Tax Cuts.]

That the White House would agree to such a deal, which is being roundly criticized by its allies on the left, tells us some important things about what it is thinking.

First, despite its statements to the contrary, that the stimulus has not worked as advertised. Critics have called it an outright failure, citing as proof the fact that unemployment is up around 9.8 percent when the White House promised it would not exceed 8 percent if it were enacted. Long term joblessness is a significant problem, one that dramatically affects Obama’s re-election prospects. Both the extension of unemployment benefits and the payroll tax reduction are ways of addressing it, if even temporarily.

Second, that the White House has made the calculation that it has more to worry about from the center than it does from the left.

To progressives, sparing what is commonly referred to as “the wealthiest Americans” is fair and just. There is plenty of polling data to suggest that, to everyone else, it is unpopular – as explained here yesterday. Voters, including the independents that formed an important part of the Republican’s winning coalition in the 2010 election, see the problem in Washington as one of over-spending, not under-taxation.

[See top 5 winners and losers in this election.]

By cutting the deal they have, the White House has likely concluded that it is more important to cozy up to the middle than it is to keep it’s left-leaning base happy, probably believing that it has no where else to go and will, therefore, stick with Obama through 2012.

Third, that with the Republicans due to soon come into power in the U.S. House of Representatives and to increase its numbers in the U.S. Senate that they have to, in fact, deal with them rather than run roughshod over them as they have for the last two years.

It is clear from the election returns, and how well the Republicans did across the country at the state as well as the federal level, that the electorate is unhappy with the way Obama has governed since he was elected. In a sense, they want him to be the kind of president he promised to be during the 2008 campaign – a post-partisan problem solver that brings all sides together – rather than a “my way or the highway” kind of guy. The tax deal is the first indication that they have gotten the message.

Unlike the “triangulation” employed by the Clinton White House after the Democrats took a beating in the 1994 election, Obama seems more likely to try and build moderate, bi-partisan coalitions within the Senate in order to take the edge off what the new House Republican majority will pass, thereby enabling everyone to come out of things saying they got something and they gave something, which is more in line with what one may suspect the voters want to see over the next two years.

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