You are using an outdated browser.
Please upgrade your browser
and improve your visit to our site.
Skip Navigation

Obama's Tax Cut Gambit: Shrewder Than You Think

Another thought occurred to me reading this morning's stories about Obama's trip to the Hill yesterday. One of the presumed rationales for leaning so heavily on tax cuts is political, the theory being that it helps you attract GOP votes. (Set aside the substantive rationale, which is powerful on its own, and Obama's denial of this motive.) In response to which, people like Paul Krugman argue that:

Republicans are not going to come on board. Make 40% of the package tax cuts, they’ll demand 100%. Then they’ll start the thing about how you can’t cut taxes on people who don’t pay taxes (with only income taxes counting, of course) and demand that the plan focus on the affluent. Then they’ll demand cuts in corporate taxes. And Mitch McConnell is already saying that state and local governments should get loans, not aid--which would undermine that part of the plan, too.

I think that's mostly right as a prediction of the GOP response. But, unlike Krugman, I think that response could be a good thing for Obama and the Democrats, in that it exposes the GOP's true priorities in a way that's politically damaging to them.

By agreeing to channel up to 40 percent of the stimulus through tax cuts, Obama is essentially calling the GOP's bluff. He's saying, "You guys are making a principled argument that tax cuts can be a more efficient way to stimulate the economy. I'm accepting that argument in large part. So rather than spend a lot of money helping low- and middle-income people, I'm going to get that money to them via tax cuts."

At which point he's kind of backed them into a corner. If the GOP accepts, then great. If they turn around and say, "Well, when we said tax cuts, we actually meant tax cuts for wealthy people, not for low- and middle-income people," then it becomes blindingly obvious that they weren't making a principled argument at all. They were trying to shake Obama down on behalf of their rich cronies.

And, indeed, it looks like the GOP, while momentarily torn, can't resist the taking the bait. According to today's Post, Arizona Sen. Jon Kyl is responding by pushing for permanent cuts in corporate and capital gains taxes--neither of which is likely to have much short-term stimulative effect. (See here for an explanation of the faulty capital gains logic.) Something tells me Obama won't have trouble winning a debate between tax cuts for working people and tax cuts for big business and wealthy investors.

In a sense, this is an early application of the "theory of change" Obama hinted at during the Democratic primaries, which American Prospect editor Mark Schmitt  brilliantly sized up. Back then Schmitt wrote:

As Michael Tomasky describes it in his review of The Audacity of Hope, "The chapters boil down to a pattern: here's what the right believes about subject X, and here's what the left believes; and while I basically side with the left, I think the right has a point or two that we should consider, and the left can sometimes get a little carried away." What I find fascinating about his language about unity and cross-partisanship is that it is not premised on finding Republicans who agree with him, but on taking in good faith the language and positions of actual conservatism -- people who don't agree with him. ...

The reason the conservative power structure has been so dangerous, and is especially dangerous in opposition, is that it can operate almost entirely on bad faith. It thrives on protest, complaint, fear: higher taxes, you won't be able to choose your doctor, liberals coddle terrorists, etc. One way to deal with that kind of bad-faith opposition is to draw the person in, treat them as if they were operating in good faith, and draw them into a conversation about how they actually would solve the problem. If they have nothing, it shows.


--Noam Scheiber