Why 2011 will be the Year of the Tax Cut

November 3, 2010

American presidents usually win second terms, even if their parties suffer midterm blowouts. But President Barack Obama better not rely on history for a 2012 victory. To lift his political fortunes after Tuesday’s absolute shellacking — and those of the economy — he needs to work with incoming Republicans to do two big things: cut spending and cut taxes.  Here’s why:

1. Unless Obama actually desires to be a one-termer, he really has no other choice. Ronald Reagan and Bill Clinton both sailed to reelection despite suffering midterm setbacks, thanks to good growth and popular policies. When it’s one-and-done, as was the case with Jimmy Carter in 1980 and George Bush in 1992, it’s the economy that sends them packing. And that’s just the scary scenario emerging for Team Obama. The White House’s own forecasts don’t predict unemployment dipping below an average of 8 percent until 2013. Even worse, some of the hardest hit states — Florida, Michigan and Ohio – are big ones in the Electoral College that Obama needs to win again if he’s going to score another four years in the job. And all three just elected Republican governors.

2. Obama could stay the course. He could battle the GOP newcomers including their sizeable Tea Party contingent, pray for a boom and continue to push his agenda, such as capping carbon emissions, through regulatory agencies. But that’s a dead electoral end unless the economy perks up considerably (and immediately) and Republicans choose some incompetent, unelectable nominee. (As the midterms showed, candidate quality matters.) One of the clear midterm messages is that Americans have rejected the beyond-center-left, big government, redistributionist agenda. Exit polls said that some 60 percent of voters think government is doing too much. And voters in blue-state Washington rejected tax increases on the rich.

3. Voters say they want compromise. And there are deals Obama could potentially reach with Republicans that might generate jobs and reassure markets about America’s fiscal seriousness. Obama has already proposed letting businesses immediately deduct new capital investments. He could add cuts in corporate and payroll taxes and temporarily extend some or all of the expiring Bush tax cuts.  Both parties should also take a look at the Wyden-Gregg tax reform bill. In return, Obama could bargain for more infrastructure spending, especially if he agreed to suspend federal pay rules that raise the cost of government-funded construction projects.

4. But there might be even more opportunity on the spending side. In a bit of fiscal jujitsu, Obama could challenge the Tea Party folks to cut billions in corporate tax breaks and vote for any social insurance cuts recommended by his own deficit panel. And Obama must surely know that when advanced economies have reordered their fiscal houses by cutting spending, it’s often been under center-left governments able to pull a “Nixon to China” moment with interest groups.

It may not feel like it right now to the shell-shocked White House, but the Democratic election throttling might just help the president pivot to a second term.

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[...] presidents usually win second terms, even if their parties suffer midterm blowouts James Pethokoukis This entry was posted in Global News and tagged 2011, year. Bookmark the permalink. ← [...]

[...] over tax cuts and health careTelegraph.co.ukObama says growth requires more than tax cutsReutersWhy 2011 will be the Year of the Tax CutReuters Blogs (blog)St. Louis Post-Dispatch -Red Label News -IMarketnews.comall 18,148 [...]

[...] PostObama says growth requires more than tax cutsReutersSt. Louis Post-Dispatch -Reuters Blogs (blog) -Red Label Newsall 19,237 news [...]

[...] PostObama says growth requires more than tax cutsReutersSt. Louis Post-Dispatch -Reuters Blogs (blog) -Red Label Newsall 19,688 news [...]

I don’t understand, forgive me… Spending cuts reduce public treasure and public goods. Tax cuts also reduce public treasure and public goods. With all the negative momentum of global environmental crises on top of our own nation’s burst private-sector bubble, why is it that the republic now calls for reducing public treasure and public goods?

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[...] an eye on two Democrats who will play a key role. James Pethokoukis, a blogger, says 2011 will be the year of the tax cut. Some are choosing death over taxes. Newly elected Republicans want to repeal health [...]