By Extending Bush Tax Cuts, Obama Enhances His Reelection Prospects

I have been a vigorous critic of President Barack Obama’s economic, health care, and foreign policies, and I anticipate that I will continue to be.  In agreeing with Republican Congressional leadership, however, to extend the Bush income tax cuts to 2011 and 2012, the President appears to have pulled off a political masterstroke.


The President has combined the extension of the Bush income tax cuts with a tax reduction proposal of his own, namely a one year “tax holiday” reduction of the employee portion of the Social Security tax by two percent.    The extension of the Bush tax cuts will result in increased hiring by small business in 2011 and 2012, and the Social Security tax reduction will spur additional consumer spending in 2011.  We can anticipate that the Social Security tax holiday will be extended by Congress and the President to 2012.


Taken together, both the Bush income tax cut extension and the Social Security tax reduction will assist in improving the economic recovery as the 2012 Presidential election approaches.  While unemployment will still remain above 8%, the mainstream media will focus on its reduction below 9% and give Obama the credit.  Ironically, by agreeing to extend the same Bush tax cuts he had denounced as a candidate in 2008, the President may well come into 2012 as the favorite for reelection.


Up until this point, Obama has been an abject failure in reducing unemployment and augmenting job growth.  Last week’s jobs report showed an increase in unemployment to 9.8%, the 19th straight month with unemployment above 9 percent. The Gross Domestic Product annual increase rate since the end of the recession in June, 2009 has been an anemic 2.8%.  The President’s vaunted stimulus program has stimulated nothing but the deficit and national debt.


The major reason for Obama’s failure on jobs has been the anticipation by small business owners of the largest income tax increase in American history in 2011.  This increase would have happened had the Bush tax cuts expired as scheduled on December 31, 2010.  Facing such a tax increase, small business owners of both Subchapter S corporations and unincorporated businesses have been most reluctant to increase employment.  Small business historically has always been the engine of job creation, and Obama economic policies had thrown a monkey wrench into this engine. 


With the extension of the Bush tax cuts, a major impediment to small business job creation has been removed.  Other Obama-created impediments remain, most notably ObamaCare.  Furthermore, the quantitative easing monetary policy implemented by Federal Reserve Board Chair Ben Bernanke and supported by Obama will almost certainly lead to stagflation in a second Obama term.


Nevertheless, for the political short run, there is no doubt that Obama’s agreements with the Republicans on taxes have significantly bolstered his position.  In addition to the extended Bush tax cuts generating small business job creation, the Obama Social Security tax cut will generate genuine economic stimulus by consumer spending, as opposed to the abortive efforts of the President to generate economic stimulus by government spending.


In view of the significant enhancement of the President’s political prospects, it astounds me the extent to which left-liberal Democrats in both the Congress and among liberal punditry have excoriated the President in reaching agreement on taxes with Republican Congressional leadership.  They also completely ignore the fact that he won Republican agreement to extend unemployment benefits.


Yet this condemnation of Obama by left liberal Democrats is also a political plus for the President.  It makes him look like a centrist Democrat, which he definitely is not.  If the left-liberal Democrats run a candidate for the Presidential nomination against Obama in the Democratic primaries (e.g. Howard Dean), Obama will certainly win.  This will give him the aura of victory and further enhance his efforts to portray himself as a centrist.


In truth, the left-liberal Democrats are to mainstream liberal Democrats what Tea Party Republicans are to center-right Republicans.  There is one difference between left-liberal Democrats and Tea Party Republicans, however.  Tea Party Republicans are actually less obstructionist.


If Democrats want an example of what happens to a Chief Executive of their party, federal or state, who ignores political tax reality, they need look no further than the example of former New Jersey Governor Jim Florio in 1992, when the Republican Assembly and Senate overrode his veto of the Republican sales tax reduction from 7% to 6%.


I like Jim Florio, and I believe that future historians will judge his tenure as governor favorably.  He already has received something of a favorability upsurge among New Jerseyans in recent polls. 


In 1992, however, Florio was in a very weak position politically due to the enactment of increased income and sales taxes during the first two years of his term.  Republicans had gained veto-proof majorities in the Assembly and Senate in the 1991 election, and they were virtually totally united behind their leadership’s proposal to roll back Florio’s sales tax increase from 7% to 6%.


It was a foregone conclusion that the Republican-controlled legislature would override a Florio veto of both the sales tax roll back and of the GOP $1 billion reductions in his proposed FY 1993 budget.  Yet he chose to veto both measures, knowing that his vetoes would be overridden.


I served on the Assembly Republican staff of the then Speaker Garabed “Chuck” Haytaian at that time.  Chuck has always maintained that if Florio had agreed to the sales tax roll back, he would have been reelected in 1993.  I agree completely with that assessment.  As it was, he only lost to Christie Whitman in 1993, a candidate of star quality, by 26,000 votes, a margin of one percent. 


Unlike Jim Florio, I do not believe that Barack Obama’s administration will receive a favorable assessment from future historians, at least based on his record to date.  Again unlike Jim Florio, however, Barack Obama’s greater apparent sense of political tax reality may well result in his reelection in 2012.  



Alan J. Steinberg served as Regional Administrator of Region 2 EPA during the administration of former President George W. Bush. Region 2 EPA consists of the states of New York and New Jersey, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, and eight federally recognized Indian nations.  Under former New Jersey Governor Christie Whitman, he served as Executive Director of the New Jersey Meadowlands Commission. He currently serves on the political science faculty of Monmouth University. By Extending Bush Tax Cuts, Obama Enhances His Reelection Prospects