A number of commentators, including myself, have argued that if no deal is reached to avert the “fiscal cliff” and taxes go up on most Americans, then President Obama will be able to structure a massive middle class tax cut in the new year that Republicans would find impossible to oppose. Among the many political implications of such a scenario, one would be that the basket of policies now commonly referred to as the “Bush tax cuts” will suddenly morph into the “Obama middle class tax cut.” In my mind, this would be a major error by Republicans.
Democrats were opposed to both rounds of Bush tax cuts in 2001 and 2003 and have spent a decade blasting them as reckless policy that represented nothing but a giveaway to the wealthy. Yet even though these tax cuts were scheduled to expire after 2010, they were extended an additional two years. And now, they could still preserve 80 percent of them. If 80 percent of the cuts were made permanent, it would forever enshrine the “Bush tax cuts” as major middle class tax relief. Viewed narrowly, allowing rates to go up on those earning more than $250,000 would be a defeat for Republicans. But viewed in a broader context, the fact that a Democratic president coming off of a reelection still has to embrace 80 percent of the dreaded “Bush tax cuts” on the grounds that they’re good for the middle class, could be seen as a victory.
If the nation goes over the cliff, the most likely outcome is the worst of both worlds for Republicans. Once some sort of legislation eventually gets passed, taxes will still go up on higher income earners. But additionally, Democrats will appropriate much of Bush’s tax policy and Obama will become the great middle class tax cutter.