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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

Weeks after the election, as Democrats on the Hill and progressives in the trenches continued to urge Obama to engage in a shoot-out with the congressional Republicans over the tax breaks for the well-to-do, the White House began (secretly at first) negotiating a deal with Senate Republicans, with Vice President Joe Biden and Senate Minority Leader Mitch McConnell haggling. Obama was willing to eschew the fight his Democratic comrades yearned for in order to win something bigger and better: more stimulus to aid the ailing economy.

The president was also reluctant to see the game of chicken conclude with a crash that would result in taxes going up for the middle class and out-of-work Americans seeing the end to unemployment benefits. That could cause hardship for these Americans—and hinder the entire economy. And he, Biden, and others in the White House assumed that come the new year, the Republicans, with control of the House, would have an advantage. If Obama now stared down the GOPers and the Rs didn't blink, all the Bush tax cuts would disappear on December 31, 2010. Yet, presumably, the new Republican-controlled House would soon pass a bill extending all of the tax breaks. That legislation would move to the Senate, and the White House didn't trust Senate Democrats to hold the line against a measure cutting taxes for both the middle class and the high-end earners. So any major fight in December could well conclude with a Pyrrhic victory. Obama could stop the continuation of the tax breaks for millionaires, yet quite possibly only until the new Congress came to town—and there would be no new stimulus to boost the flagging economy.

There was another important factor affecting the president's thinking. Obama was looking to rack up other accomplishments during this lame-duck session, before the House would be in the hands of tea partiers. He was hoping to end the Pentagon's Don't Ask, Don't Tell policy, to ratify the New START nuclear arms reduction treaty, and pass the DREAM Act reforming immigration law. If he went DEFCON-1 on taxes with the Republicans, there would be no opportunity to steer these other measures through Congress in the holiday season, as it was wrapping up its business. It was quite clear: a bare-knuckles brawl on taxes would mean no more stimulus and no chance to abolish Don't Ask, Don't Tell, ratify that treaty, or pass any other legislation.

When the deal was done, many of Obama's own political allies did not immediately recognize what he had won. To many on the outside, it did seem as if he had caved.

So Obama went after a deal. And what Biden cooked up with McConnell was pretty good for the White House. The package would extend the Bush tax cuts for all taxpayers for two years and would reduce estate taxes for the wealthy (a move many Democrats couldn't stand), but it also included a payroll tax cut, a child tax credit, additional unemployment insurance, renewable energy grants, and other stimulative measures. A White House chart noted that Obama had won $238 billion of stimulus in return for yielding on $114 billion in high-income tax cuts.

In a way, Obama had sacrificed a stand of principle to push a second stimulus through Congress and provide a much-needed boost to the economy. It was a tough call. As I reported in my book, Showdown: The Inside Story of How Obama Battled the GOP To Set Up the 2012 Election, there were moments when Obama nearly walked away from the deal. But he succeeded in achieving his No. 1 priority: passing legislation that would produce economic assistance. The price, though, had been to yield to the Republicans on the upper-income tax breaks and the estate tax.

In policy terms, Obama clearly had gotten the better deal. The trouble was that the political world and the public had been conditioned to see this episode as primarily a clash over the top-tier tax cuts—and on that Obama had not gotten what he wanted. Consequently, the media depicted the compromise as a loss for Obama, and progressive Democrats squawked mightily about the continuation of the tax cuts. At a White House press conference following the deal's announcement, Ben Feller of the Associated Press challenged the president: "You've been telling the American people all along that you oppose extending the tax cuts for the wealthier Americans…So what I'm wondering is when you take a stand like you had, why should the American people believe that you're going to stick with it? Why should the American people believe that you're not going to flip-flop?" Moments later, Chuck Todd of NBC News noted that the Republicans had forced Obama "to capitulate."

This was not full capitulation. It was a strategic retreat to accomplish a bigger mission. Obama, however, never told this story. Throughout that lame-duck session, few in the media and few in Democratic congressional circles had realized what Obama was trying to pull off. When the deal was done, many of Obama's own political allies did not immediately recognize what he had won. To many on the outside, it did seem as if he had folded. As with the stimulus, the health care bill, and the middle-class tax cuts he had passed in his first year, Obama had neglected to convince the public of the value of his victory. And with 2010 coming to an end, and all eyes trained on the newly triumphant tea party, there was not much political space for this particular counternarrative. It didn't help that Summers, Axelrod, and other senior aides were not allowed to admit in public that the president had slyly achieved a second stimulus, for the S-word remained in disrepute.

Two years later, Obama still does not tell the story of that period well. In response to Yellin's question, he did not take explicit issue with her cave-in characterization:

Well, two years ago, the economy was in a different situation. We were still very much in the early parts of recovering from the worst economic crisis since the Great Depression. And ultimately, we came together not only to extend the Bush tax cuts, but also a wide range of policies that were going to be good for the economy at that point—unemployment insurance extensions, payroll tax extension—all of which made a difference, and is part of the reason why what we've seen now is 32 consecutive months of job growth and over 5.5 million jobs created and the unemployment rate coming down.

Yet Obama is right: the current circumstances are different, and after his reelection he is in a better position to do battle on the tax-cut front. He told Yellin:

[W]hat I said at the time is what I meant, which is this was a one-time proposition. And what I have told leaders privately as well as publicly is that we cannot afford to extend the Bush tax cuts for the wealthy. What we can do is make sure that middle-class taxes don’t go up.

In a recent White House meeting with labor leaders and progressive activists, Obama signaled he is ready to fight the GOPers—and this time dare the Republicans to block continuing the tax cuts for the middle class. But no one ought to forget that Obama, a progressive in his policy preferences, remains a pragmatist. What happened two years ago is not an indication that Obama is likely to yield in the new face-off, but that he will be assessing the political dynamics in gridlocked Washington and be willing to bargain hard for a good deal with true benefits. That's not caving in. It's governing.

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