What Obama Overlooked in his Tax Deal

Here's a key bit from a NY Times op-ed by Paul Krugman looking at the tax deal that gives $700 billion in cuts to income taxes for billionaires and millionaires and reduces the estate tax for the top 0.6% of Americans (they are the only ones who "qualify" to pay it, so all cuts go to them):

But here’s the thing: while the bad stuff in the deal lasts for two years, the not-so-bad stuff expires at the end of 2011. This means that we’re talking about a boost to growth next year — but growth in 2012 that would actually be slower than in the absence of the deal.

This has big political implications. Political scientists tell us that voting is much more strongly affected by the economy’s direction in the year or less preceding an election than by how well the nation is doing in some absolute sense.

When Ronald Reagan ran for re-election in 1984, the unemployment rate was almost exactly the same as it had been just before the 1980 election — but because the economic trend in 1980 was down while the trend in 1984 was up, an unemployment rate that spelled defeat for Jimmy Carter translated into landslide victory for Reagan.

This political reality makes the tax deal a bad bargain for Democrats. Think of it this way: The deal essentially sets up 2011-2012 to be a repeat of 2009-2010. Once again, there would be initial benefits from the stimulus, and decent growth a year before the election. But as the stimulus faded, growth would tend to stall — and this stall would, once again, come in the months leading up to the election, with seriously negative consequences for Mr. Obama and his party.

You may say that economic policy shouldn’t be affected by partisan considerations. But even if you believe that — how’s the weather on your planet? — you have to consider the situation likely to prevail a year from now, as the good parts of the Obama-McConnell deal are about to expire. Wouldn’t there be pressure on Democrats to offer Republicans something, anything, to improve economic prospects for 2012? And wouldn’t that be a recipe for another bad deal?

Surely the answer to both questions is yes. And that means that Mr. Obama is, as I said, paying for the release of some hostages — getting an extension of unemployment benefits and some more stimulus — by giving Republicans new hostages, which they may well use to make new, destructive demands a year from now.

Read the whole article. It has more details of why this is truly bad.

The news is reporting that the US House of Representatives revolted. The Democrats held a caucus to vote on the Obama "deal" and the shouted it down with only 1 Congresswoman, from Nevada, voting with Obama. Obama is showing incredibly poor "leadership" on this tax issue!