It is tempting, in view of Barack Obama’s re-election, to look back on his first term as a rousing success, but it was not. Obama got his initial stimulus and his healthcare bill, but he made political errors in the first two years that helped Republicans retake the House and a majority of governorships in a crucial redistricting year. And in 2011, he made back-room concessions on the budget that seriously imperiled the economic recovery. So I still don’t share Jon Chait’s halcyon view of the Obama presidency.
But Obama learned from the difficulties of his first term. The debt-ceiling fiasco of Summer 2011 was clearly a turning point. In the election, Obama framed the campaign in classic Democratic terms as a contest of the party of the common man against the party of the rich, while carefully targeting the new Democratic demography. And in the two months since his reelection, he carried through on the promise of the campaign by centering the fiscal cliff negotiations on ending tax cuts for the wealthy.
The bill, the American Tax Payer Relief Act, raises tax rates back to 39.6 percent for those making over $400,000; limits deductions and credits for those making over $250,000; extends unemployment insurance; expands the earned income tax credit; and gives Congress another two months to prevent sequestration. Some of my colleagues argue that he could have gotten more, but I don’t think so. The final result, approved by the House of Representatives, saves the country from another fiscal train wreck. It also positions Obama and the Democrats very well in future fights with a Republican Party that is becoming an embattled outpost for addled billionaires and white Southern revanchists. It may not happen during Obama’s second term, but the GOP may be on the way to marginalizing itself as a political party.
Going into the negotiations over the fiscal cliff, Obama had two objectives. First, he had to prevent tax increases and further cuts to government spending that would imperil the recovery. As the CBO forecast last fall, further fiscal tightening could raise unemployment and slow growth, perhaps even leading to a recession. That’s certainly what happened in the United States in 1937 and in Japan in 1997 when policy-makers were under the illusion that reducing the deficit was the path to economic growth. The compromise, reached by Senate Minority Leader Mitch McConnell and Vice President Joe Biden, protected consumer demand and jobs.
The Senate resolution only raised tax rates for the wealthy--who, because of their tendency to save rather than consume, could actually benefit the economy. It also contained no spending cuts. And the very act of avoiding the fiscal cliff and the ensuing weeks of clamor or crisis will protect America’s global reputation as a “safe haven” for investors. That’s no small matter, because foreigners’ willingness to hold and invest in dollars is a major reason why interest rates have not gone up.
Secondly, Obama scored a major political triumph by getting Republicans to agree to raise back tax rates on the wealthy. Since 1978, Republicans have focused their popular appeal on the premise that cutting taxes on the wealthy – and secondarily everyone else -- will encourage growth. By putting Republicans in a position where, in order to protect tax cuts for the wealthy, they had to risk increasing taxes for everyone by letting the country go over the cliff, Obama and the Democrats robbed them of what has been their defining issue. They are now left with advocating spending cuts, which, as it turns out, are only popular in the abstract.
In negotiating over the fiscal cliff, Obama also did something that he failed to do during the summer of 2011: He campaigned publicly. He framed the issues. He put the Republicans on the defensive in a way that he failed to do during much of his first term. Fifty years ago, perhaps, a Democratic president could have relied on constituent groups, led by the labor movement, to carry the battle for liberal initiatives, but while these groups are important, they don’t carry the same kind of clout they used to. And they don’t have the money to compete with Republican and conservative groups. But the President can command the public’s attention, and Obama did--right up through the final days of voting.
There are arguments to be made about whether Obama got enough from the negotiations. Could he have held out for a $250,000 floor on increased tax rates? Perhaps, but he had to make some concession and he retained the central political principle, while keeping three-fourths of the promised revenue. More important, could Obama have gotten an agreement on the debt ceiling or the sequester instead of postponing these battles? That’s a more serious issue, but my sense is that with Republicans still controlling the House, Obama did not have the power to force Senate and House Republicans into a last minute deal on these issues without making very unfortunate concessions on spending and taxes.
With a new House and Senate, Obama stands a good chance of winning these battles in the months to come -- if he continues to conduct these negotiations as political campaigns and not as backroom Washington affairs. The fiscal cliff deal took tax rates out of the discussion. What’s left are spending cuts. If Obama allows the Republicans and obnoxious groups like Fix the Debt to frame the issues, he’ll be in trouble. And he did seem to fall into this trap briefly when he proposed changing the cost of living index for Social Security. But if he reminds the public that what the Republicans and their allies want to do is cut their Medicare and Social Security, he and the Democrats should be in good shape.
As for the Republicans, the debate over the fiscal cliff, like the debate last year over the debt limit, revealed serious divisions within the party and its rank-and-file that Obama and the Democrats could exploit over the next months. There are at least three different kinds of divisions that have become visible. First is between the Senate and the House. Senate Republicans, who are in a minority, have proven more amenable to compromise on fiscal issues. Unlike most Republican House members, many senators can’t count on being re-elected by solid Republicans majorities. McConnell himself comes from a state where Democrats still hold most of the state offices.
Secondly, there is a regional division in the party between the deep South, which contains many of the diehard House Republicans, and the Republicans from the Northeast, industrial Midwest, and the Far West. In the House vote on the fiscal cliff, Republican House members from the deep South opposed it by 83 to 10, while Republicans from the Northeast favored it by 24 to one, and those from the Far West by 17 to eight. After the Republican leadership refused to bring a Sandy hurricane relief bill to the floor before the end of the session – effectively killing it – New York Republican Peter King called on New York and New Jersey Republicans to withhold donations to the GOP. New Jersey Governor Chris Christe blew his top at the House Republicans.
Third, there is a division among Republican lobbies, political organizations and interest groups that surfaced in the wake of the election and once again this week. It’s not easy to define, but it runs between pro-business conservatives, on the one hand, and the right-wing libertarians of the Tea Party and Club for Growth and their billionaire funders. Grover Norquist and Americans for Tax Reform gave their approval the Senate bill. The Chamber of Commerce grudgingly endorsed the final bill, and the National Federation of Independent Business said the tax provisions were acceptable. The Club for Growth, the Koch Brothers’ Americans for Prosperity, FreedomWorks (which itself has fallen under the sway of its most ideological elements), and the Tea Party Patriots opposed any compromise.
These divisions don’t necessarily augur the kind of formal split that wrecked the Whig Party in the 1850s. Nor do they suggest widespread defection of Republicans into the Democratic Party as happened during the 1930s. There is still far too much distance between, say, McConnell and Democratic Majority Leader Harry Reid. But they do suggest that a process of erosion is under way that will weaken the Republicans’ ability to maintain a united front against Democratic initiatives. That could happen in the debates over the sequester and debt ceiling if Obama and the Democrats make the kind of public fuss that they did over fiscal cliff.