Barack Obama could have secured a bipartisan deal this week to extend the Bush tax cuts for everyone, and he could have gotten some business tax breaks thrown in as well. As I wrote last week, such a deal would have been tremendously positive – it would have provided a sense of predictability for the stock market and business executives.
But the White House apparently would prefer to energize the party’s base by playing the class warfare card, a tactic that rarely works and undoubtedly will increase the sense of alienation that business leaders have toward Obama.
Never mind that some of the brightest young economists in America – including Moody’s Mark Zandi and St. Louis Fed President James Bullard – have warned that raising taxes on anyone is a bad idea with the economy so fragile.
The President’s refusal to compromise is not just a bad idea from an economic standpoint. He has placed moderate Democrats in a terrible bind; they will return from the summer recess shell-shocked, facing a tidal wave at the polls in November, and many will reject Obama’s position.
I have thought since mid-summer that the Bush tax cuts would get extended for everyone, and I still do; the issue always was timing – would a deal come in September or in a December lame duck session of Congress?
The President’s Cleveland speechdashes hopes for an agreement in principle in September, so now it looks like the lame duck scenario, in which Obama will be forced to cave without getting much in return. For the markets, the uncertainty over taxes thus may linger for three more months.