Extending the Bush Tax Cuts and the 2012 Election

Dec 6 '10

Ezra Klein “sees”:http://voices.washingtonpost.com/ezra-klein/2010/12/can_the_white_house_win_in_201.html this in the deal on the tax cuts:

bq. But though they’re coming out on the wrong side of the short-term politics and the wrong side of the tax policy, they may be coming out with a win on stimulus that no one expected, and that may ultimately matter much more for both the economy and Obama’s reelection campaign.

Jon Bernstein “believes the deal”:http://plainblogaboutpolitics.blogspot.com/2010/12/obama-tax-cuts-and-bargaining.html is the logical outcome, given the two parties’ policy priorities.

I also suspected that a bargain was in the offing, and I want to state even more emphatically what Ezra suggests at the end of his post:

If these tax cuts and the extended unemployment benefits indeed have a stimulative impact on the economy, this deal is _by far_ the best thing for Obama to do for 2012.

Presidential election outcomes depend more on economic growth in the year before the election than on economic growth at any other point in time. This is the finding of Larry Bartels in _Unequal Democracy_ — the subject of this week’s “roundtable”:https://themonkeycage.local/2010/12/roundtable_on_larry_bartels_un.html. The two graphs below show the relationship between election outcomes and income growth either over the 4 years of the president’s term or in the year before the election.

Note that the line summarizing the relationship is much steeper in the bottom graph, when income growth is measured only in the year before the election.

So if the tax cuts do help the economy, the timing should work out well for Obama. The next two years, and especially 2012, are absolutely the most important years in terms of how much the economy will affect his reelection prospects.

But what about the effect of the tax cuts on the deficit? From the standpoint of winning reelection, it doesn’t matter.

Last week, I made my “daring and innovative contribution”:https://themonkeycage.local/2010/11/obama_should_refuse_his_salary.html to deficit messaging kabuki — suggesting that Obama should have refused his salary instead of freezing the pay of federal workers — and earned “this”:http://andrewsullivan.theatlantic.com/the_daily_dish/2010/11/a-two-year-spending-freeze-ctd.html from Andrew Sullivan:

bq. John Sides suggests a pathetic alternative for the president: giving up his salary and asking every other congressperson to do the same. Seriously?

I take “pathetic” as a compliment! My proposal was a stupid symbolic messaging idea whose only merit was that it was, I think, merely better than the largely symbolic pay freeze.

But here’s the real rub. Sullivan again:

bq. Obama has to recapture those in the middle, especially Independents (like yours truly) who really do want to see a grown-up in Washington offer a serious plan for eliminating the long-term debt. If Obama can do that – and fight for it more aggressively and specifically than he did for health insurance reform – a slowly reviving economy, bolstered by more long-term confidence, will win him a landslide (and save the country’s economic future too).

Yes, there’s no doubt that voters say and independent voters say that the deficit is a problem. But at the end of the day, do they reward or punish presidents for this? I said this before: “NO”:https://themonkeycage.local/2010/06/do_americans_really_want_to_cu.html. They reward or punish presidents for economic growth. If reducing the deficit leads to economic growth, then bully, but otherwise, reducing the deficit isn’t a ticket to reelection.

Of course, one can critique the tax cuts as policy, especially from the standpoint of deficit reduction. And certainly, as Matt Yglesias “notes”:http://yglesias.thinkprogress.org/2010/12/morning-in-america-2/, our economic challenges will likely remain significant. But any stimulus provided by the tax cuts could prove an electoral boon for Obama in 2012.