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The Myth of the Obama Cave-In

With the "fiscal cliff" looming, the conventional wisdom is that the president capitulated during the last tax cut fight. Here's what really happened.

| Mon Nov. 26, 2012 7:03 AM EST

At President Barack Obama's first press conference after winning reelection, CNN's Jessica Yellin posed a saucy question: "Mr. President, on the fiscal cliff, two years ago, sir, you said that you wouldn't extend the Bush-era tax cuts, but at the end of the day, you did. So, respectfully, sir, why should the American people and the Republicans believe that you won't cave again this time?"

With this pointed query, Yellin was reviving a notion that took root within the mainstream media and progressive circles: Obama surrendered in the lame-duck session of late 2010, when he and the Republicans tussled over continuing George W. Bush's tax breaks for the well-heeled. In this view, weeks after the president's party was trounced in the midterm congressional elections and weeks before the tea partyized GOPers were to take control of the House, Obama, who had vowed during the 2008 campaign to kill those tax cuts, acceded to Republican demands for continuing tax relief for those pocketing more than $250,000 a year. The establishment media reported that Obama had lost the showdown; liberal House Democrats and progressives off Capitol Hill complained Obama had turned his back on his promise and blinked. There was grousing that Obama either had no taste for a political battle or no spine (or both) and that he had sold out a fundamental principle.

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The ghost of that narrative haunts the current moment, for as Obama heads into a similar dustup—those Bush tax cuts are again set to expire at the end of the year, just as automatic across-the-board budget cuts are scheduled to kick in, and another debt ceiling fight looms—members of the politirati (such as Yellin) are suggesting that Obama might once more turn tail and betray his promise to say no to another extension of these tax breaks for the rich.

But that narrative was wrong when it emerged—and it is not the key to predicting what Obama will do in the present predicament. Obama didn't wave the white flag in 2010. He turned a face-off over the Bush tax cuts into an opportunity to enact a second stimulus that he otherwise could not get past Senate Republicans. His failure at that time was not that he mustered insufficient mettle; he failed to convey to the world that he had jujitsued the GOPers.

For months prior to that tussle, the conventional view was accurate: The main issue was whether the tax cuts for the wealthy would continue. All the Bush tax cuts were due to evaporate at the end of 2010. (Bush had set that expiration date to diminish the tax cuts' impact on the long-term deficit.) During the 2008 campaign, Obama had promised not to raise taxes on middle-class earners and not to keep those Bush tax cuts for the top 2 percent. So he and his Democratic allies wanted to decouple the tax cuts for the rich from those for the rest—and extend only those for the bottom 98 percent.

Obama didn't surrender in 2010. He turned a face-off over the Bush tax cuts into an opportunity to enact a second stimulus that he otherwise could not get past Senate Republicans.

The Republicans balked at that notion. They contended this would amount to a tax increase—if only on those in the upper brackets. They threatened to block any move to continue only the tax breaks for the middle. And with the filibuster in the Senate, they were positioned to do so. Moreover, they signaled they would fiercely attack Democrats who voted to extend only some of the tax cuts as tax hikers (though these Democrats would merely be supporting a return to the rates of the Clinton years). A game of chicken was on. Obama and the Democrats claimed the Republicans were holding tax cuts for the middle class hostage. (No tax breaks for the rich, then no tax breaks for anyone else.) And the GOPers were daring Obama to stick to his position, see all the tax cuts perish, and end up being blamed for a rise in taxes for everyone.

There was solidarity on the GOP side, but not among the Democrats. In the summer of 2010, as the midterms approached, several Democratic Senate candidates told Senate Majority Leader Harry Reid and the White House they preferred not to vote on any legislation that would keep only the middle-class tax cuts alive. They feared the GOP effort to brand them tax raisers—which would be backed by unregulated special-interest campaign cash unleashed by the Supreme Court's Citizens United decision—would work. If there were a vote on decoupling the Bush taxes, White House aides figured, it was indeed possible that the president could not hold his side together.

In the White House, Obama and his aides gamed out various scenarios. With the economy sputtering in the second half of 2010, they worried that if the GOPers were hell bent on winning this game of chicken, taxes would go up for all at the start of 2011—as unemployment benefits were ending (for the Republicans were blocking an extension of those, as well)—and this would lead to a decrease in consumer demand that would roil the fragile economy. Lawrence Summers, the head of Obama's National Economic Council, fretted about a double-dip recession. Obama and his aides felt boxed in. The president had political promises to keep; he also had to prevent the economy from taking another downward turn.

In the fall of 2010—both before and after the midterm elections—Obama and his aides cooked up a different script. Fretting that the slow recovery was bottoming out, they had been searching for ways to juice up the economy. But they knew the notion of additional stimulus was a political nonstarter. Though Obama's original stimulus had worked, raising employment levels by millions of jobs (according to the nonpartisan Congressional Budget Office), Obama had lost that message war. The idea of government spending to boost the economy had become discredited. (See the tea party victories in the congressional elections.)

Obama's aides, though, also knew that by the end of the year there would be some legislation regarding the Bush tax cuts—however that knotty issue was to be resolved—and they came up with a plan to turn this measure into something of a Trojan horse that could contain (or hide) various stimulative measures. Before the midterm elections, Obama's economic team began compiling a list of possibilities, including a payroll tax cut and various tax credits.

At a postelection meeting with labor leaders and progressive activists, several of whom were itching for a tax cut fight with the Republicans, White House aides were blunt. To win these stimulative shots, Summers told them, we're going to have to give up on killing the tax cuts for the rich. "Getting more for our people is more important than getting less for their people," he said at the meeting.

Many House Democrats, though, were leaning on the White House to mount a battle royal. "We heard Democrats say, 'Let's make them vote over and over again on tax cuts for the rich,'" David Axelrod, a top Obama adviser, told me afterward. "'Go until January or February and people will know that's what the Republicans stand for.' We were flabbergasted. They missed the overall point that taxes would go up and unemployment insurance would be lost by 2 million. Obama was determined to get something done." Especially now that unemployment was near 10 percent and economic forecasts were worrisome.

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