No, Mr. President, you did not negotiate a winning tax deal

By William K. Black

This the third column in a series about President Obama’s decision to agree to support the extension of Bush’s tax cuts for the wealthiest Americans. The first column explained why the President folded on a winning hand on taxes. The second column showed that four of the five economists the administration was citing as supporting its plan were virulent opponents who were delighted that the President was capitulating to the Republicans and making them and their wealthy clients far richer. This column analyses Obama’s claim that he got the better of the Republicans in the negotiations.

The administration claims that it negotiated a winning deal with the Republicans on taxes because the Republicans gave up more than did the Democrats in the deal — a better deal than Obama thought possible. Austan Goolsbee’s (Chairman of Obama’s Council of Economic Advisors) white board presentation claims that the administration received concessions by the Republicans that are over twice as large as the concessions that the administration made on reducing taxes for the wealthiest two percent of Americans ($238 v. $114 billion in 2011). The administration (implicitly) argues that its claim of extraordinary negotiating success represents a miraculous accomplishment given the facts that the Republicans were holding all legislation hostage to their non-negotiable demand that the Bush tax cuts for the wealthiest of Americans be extended and the administration’s irrevocable decision that it could not call the Republican’s bluff because the economy would likely sink back into recession unless tax cuts for the middle class were immediately passed.

The first problem with Obama’s claimed tax miracle is that if you accept Goolsbee’s claims, then it takes a political miracle in America for a political party, pledged to ending the tax cuts for the wealthy, controlling the Presidency and with strong majorities in both Houses to get 98% of the citizens 67% of the benefits while giving the wealthiest two percent of the citizens 33% of the benefits. If Goolsbee is correct, then Obama’s tax miracle vastly increased America’s already record income inequality and ensures that the ultra wealthy will have even more dominant political power in the future to ensure that there are no new miracles. If Goolsbee is right, then things are so bad that our miracles are now disasters that further imperil our democracy.

The second problem with Obama’s claimed tax miracle is that it is too good to be true. If the Republicans really had total negotiating leverage and really opposed Obama’s plans then they would not have made any meaningful concessions to Obama. The material tax reductions for the non-wealthy and modest increased spending that the Republicans were willing to agree to prove that the Republicans could not have had total negotiating leverage and have been opposed to Obama’s proposals.

The third problem is that no element of the claimed miracle is true. The Democrats had overwhelming negotiating leverage, the Republicans did not oppose, and often strongly favored, Obama’s proposals on taxes compared to their alternative — no tax cuts. Obama capitulated to Republican demands and negotiated a deal that harmed the nation. He capitulated in a manner than guarantees that the Republicans (and the surviving Blue Dogs) will increase their tactics of bullying and holding Americans hostage to their political demands. The Republicans have confirmed (again) that Obama can be bluffed even where the bluff is taken right out of the movie Blazing Saddles (because it is facially absurd). The President compounded his failure by folding his winning hand when he would have been on the cusp of victory had he not undercut through secret surrender negotiations his Party’s big win in the House. Obama then engaged in his characteristic attack on his strongest supporters, channeling Republicans’ favorite diatribes about progressive Democrats. As my second column explained, the administration descended so low that while it was excoriating its supporters it gloried in the praise it received for capitulating on tax reductions for the wealthy from the banks representing (and the bankers who are among) the wealthiest two percent of Americans.

David Cay Johnston explained in his article urging the President to “call their bluff” why the Democrats held a winning hand with regard to taxes for the rich. The Republicans were in a Blazing Saddles bluff — where the sheriff takes out his gun, aims it at his head, and threatens to shoot. The Republicans’ position on taxes and unemployment was political suicide and there was no chance that they could maintain Party discipline on a joint suicide pact if Obama called their bluff. The Republicans would have had to block tax reductions for 98% of American taxpayers and thrown well over one million unemployed under the bus before Christmas — six million of them by Spring. Here’s rule one about responding to elected officials who threaten to commit suicide en masse — “make my day.” Think of what President Clinton did when the Republicans threatened to “shut down the government.” The threat to the nation of a complete shutdown of the federal government was far worse than the Republicans’ threat about taxes, yet Clinton did not hesitate to call their bluff and no one accused him of being irresponsible. Clinton discredited the Republican Party and their Blazing Saddles strategy so badly by calling their bluff that the Republicans did not dare to repeat the tactics.

The suicidal nature of the announced Republican position on taxes and unemployment explains why the Republicans were overjoyed to support so many provisions that the administration is claiming represent miraculous accomplishments. The reality (obvious to anyone that didn’t fall for the Republicans’ Blazing Saddles propaganda) was that Obama had broad Republican support for extending unemployment benefits, tax breaks for businesses, tax breaks for the 98% of taxpayers, and some form of special tax reduction for working class Americans — regardless of whether he capitulated on tax breaks for the wealthy. None of the things that the administration claims as miracles represented concessions by the Republican Party. (Some individual Republicans opposed particular provisions, but most Republicans and Democrats supported these provisions and Obama needed to pick up less than a handful of Republican votes in the Senate.) That means that the relevant comparison is not the dollar value of the provisions that the Republicans and Democrats both support, but rather the cost in terms of increased inequality and lost services caused by Obama’s unnecessary capitulation on extending Bush’s tax cuts for the wealthiest of Americans.

It is not too late for Obama to call the Republicans’ bluff, but that can only occur if House Democrats call Obama’s “take it or leave it” bluff. Obama adopted the Republicans’ Blazing Saddles bluff. Obama’s bluff is expected to work easily against Senate Democrats. We’ll see whether the House will save Obama from himself. The political class is predicting that Obama’s bluff and attacks on House Democrats will cause them to “surrender.”

Here’s a hint. When Dana Milbank writes a column stating that you (Obama) have never done anything in your life that made him proud until you (A) capitulated on the Bush tax cuts for the wealthy and (B) attacked liberals for opposing your capitulation that means you have fouled up so profoundly that you have brought joy to folks like Milbank that have never respected you and want you to fail. Here’s a further hint: the title of his article is “Obama finally stands his ground.” Milbank is either mocking you or he has perfected unintentional self-parody. The reason Democrats are criticizing you is that you failed to stand your ground on tax breaks for the wealthy. You promised to end the Bush tax cuts for the wealthy. You had the majorities to do so long ago. Your promise had overwhelming support from the American people. Even Milbank concedes that extending the Bush tax cuts for the wealthy is “dumb.”

Bill Black is an Associate Professor of Economics and Law at the University of Missouri-Kansas City. He is a white-collar criminologist, former senior financial regulator, and author of The Best Way to Rob a Bank is to Own One.