The Republican tax cut plan

It is interesting to watch the progress of Obama's attempt to compromise with the Republicans by giving them the continuation of tax cuts for the rich. His argument is that without such a concession the tax cuts for the middle class would not survive. This may in fact be the case. What it reveals is that Obama is not willing to give up on the continuation of middle class tax cuts, so the Republicans have the upper hand. For them it is either all or nothing, and Obama is not willing to risk nothing.

Obama is operating as if the Bush tax cuts would not survive at all if they were not acted on before the end of the year. From the point of view of the present structure of our government, it is helpful to consider the different power relationships now and in the next Congress. Obama feels he needs to act now to prevent the disruption and uncertainty of pushing the issue into the next year. It is certainly more responsible to resolve an issue before it is able to disrupt the tax collecting process.

On the other hand, there are political advantages to forcing the new Congress, where the Republicans have much more power, to deal with this issue. Now the Democrats are nominally in control, and it is their responsibility to solve the problem. Next year it will be the Republicans who will be responsible for resolving the issue. For the Democrats, it is perhaps better to force the Republicans to deal with it. They are the ones who are most adamant, especially the Tea Party faction, about reducing the deficit. They will have to find a way to justify increasing the deficit when they advocate lowering taxes. Of course they will hypocritically find a way to do so, but then the Democrats, who have the majority in the Senate, can resist the Republicans, just as the Republicans have resisted the Democrats for the last two years. The Democrats will be on the side of conservative virtue.

Of course the economy might suffer as the politics gets worked out, but my suspicion is that the economy will not suffer as much as economists think, and the feeling that something real is being done about the deficit may compensate for the downside of higher taxes. The Republicans will also get the blame, if unemployment remains high, of making the unemployed suffer.

I realize that this is a complicated issue, and there are many other considerations, but these are my thoughts.