United States President Barack Obama is bowing to Republican demands to extend a deep tax cut for wealthier Americans, to the fury of some of his allies who say he has succumbed to “blackmail”.
In a bruising political battle that appears to set the tone for Obama’s dealings with the Republicans in Congress following their midterm election victories, the president had sought to extend a tax cut for middle-class Americans introduced by the George Bush administration seven years ago, which expires at the end of this month. But he wanted to see a return to pre-cut rates for households earning more than $250 000 a year, on the grounds that wealthier Americans can pay more. The move would generate trillions of dollars for the financially strapped treasury over the next decade.
The Democratic leadership believed that, provided the middle class was looked after, the Republicans would find it difficult to justify tax cuts for the wealthy.
The House of Representatives, still controlled by Democrats until the new Congress is sworn in next month, passed Obama’s plan by a clear majority, but Republicans blocked the legislation in the Senate at the weekend, saying they would rather see everyone’s taxes rise than scrap cuts for the wealthy.
Some Democrats called on Obama to stand firm and let the Republicans carry the blame for the inevitable middle-class backlash. But leading Democrats say he is backing down and has agreed to extend tax cuts for everyone. In return, the White House appears to have extracted an agreement to extend benefits for the long-term unemployed.
Obama recently said his priority was to “prevent the middle-class tax increase” that would have occurred if there was no agreement.
“Republicans want to make permanent the tax cuts for the wealthiest Americans. I’ve argued that we can’t afford it right now. But I’ve also said we have to find consensus because a middle-class tax hike would be very tough not only on working families, it would also be a drag on our economy,” he said.
“We’ve got to make sure we’re coming up with a solution, even if it’s not 100% of what I want or what the Republicans want.”
Leading Democrats were frustrated over Obama’s backtracking. Senator John Kerry, the former presidential candidate, accused Republicans of holding the country hostage. “They’ve said, ‘we’re willing to hold that hostage so that we can give the wealthiest people a bonus tax cut’,” he said.
Outgoing House speaker Nancy Pelosi reportedly expressed deep unhappiness, saying the White House gave in too easily to Republican pressure. Richard Durbin, the second highest-ranking Senate Democrat, said the agreement to extend the tax cuts for the wealthy was “against my judgment”.
Paul Krugman, the Nobel economics prize-winner, urged Obama to stand firm against the Republicans’ “tax-cut blackmail”, which will cost the US treasury $4-trillion in revenue over the next decade and prompt a “major fiscal crisis”.
“If Democrats give in to the blackmailers now, they’ll face more demands in future. As long as Republicans believe that Mr Obama will do anything to avoid short-term pain, they’ll keep taking hostages.
If the president endangers America’s fiscal future to avoid a tax increase, what will he give to avoid a government shutdown?” Krugman wrote in the New York Times. But University of Virginia political scientist Larry Sabato argued that Obama had little choice but to make a deal.
“The Democrats haven’t adjusted to the fact that they lost the election badly. Republicans designated maintaining tax cuts as their top priority,” he said.
“The Republicans have pulled it off at the right moment. It’s immediately after the election with two years to go before the next election. So they are pleasing their constituency, which believes in that from top to bottom — not just the rich but [also] their middle-class members — without suffering real electoral consequences. That’s why Obama caved. In the end, everybody’s taxes would have gone up. Republicans would have held to this and blamed Obama.”
Sabato said the confrontation set the tone for Obama’s dealings with the Republican-controlled Congress and an increasingly belligerent Republican leadership in the Senate next year. — Guardian News & Media 2010