It’s not certain that Obama will have the fortitude to make it to January without surrendering to demands to cut a deal. He will have to endure a concerted persuasion campaign by the business lobby and the cries of the fiscal scolds, which will grow to a deafening volume by December. But if he does, Obama will have a stronger hand than he has had at any time before. On the eve of his inauguration, he will find himself holding the political high ground in the midst of a perceived economic crisis. He will demand that Republicans retreat on their refusal to increase taxes on the rich, and join him at the table.
The fight will likely come down, as it has in the past, to the extension of the Bush tax cuts. Everyone, even Democrats, will be clamoring for middle-class tax relief, and the Republicans may employ hostage tactics again, refusing to cut those taxes unless Obama agrees to extend all the Bush tax cuts, right on up to Bill Gates’s. This is how Republicans played it when the cuts were scheduled to expire at the end of 2010, and Democrats buckled almost immediately, agreeing to a two-year extension for everyone.
At least some conservative Republicans plan to run the same play again. They’re likely to find it no longer workable. Obama’s campaign message, with its sharp differentiation on taxes, has unified congressional Democrats behind an insistence that the Bush tax cuts on income over $250,000 must end. By January, the economy will have crawled further out of its hole than it had in 2010, and Obama’s reelection campaign will be over, rendering the threat of a middle-class tax hike much less dire. In fact, though Obama officials are very careful not to say so, they may not view the threat of ending the Bush tax cuts on income below $250,000 a year as a threat at all. If no deal is made, remember, Democrats win by default: Their most cherished domestic priorities are protected, and the Republicans’ are assailed.
The final piece of drama will be the return of the debt ceiling. The extension Obama won last summer will expire sometime around February or March. If Obama and the Republicans still have not resolved their struggle two months into the year, amid an atmosphere of panic, then the looming threat that Republicans might refuse to raise the debt ceiling could well offer them a useful hostage once again.
But the GOP’s ability to threaten financial apocalypse in order to extract concessions is unlikely to work nearly as well this time. In 2011, Republicans were demanding spending cuts, which put them in good standing with the business elite and anti-deficit center. In 2013, should it come, they will be demanding tax cuts and increases in defense spending, a far more complicated message. What’s more, there are strong legal arguments that the president can ignore Congress and essentially moot the debt ceiling on his own. Obama ignored these tools in 2011 and submitted to a shakedown because he believed he could cut a deal. Members of the administration aren’t brandishing this weapon, but, somewhat like the Israeli nuclear program, they are happy to have its existence known, if not acknowledged.
It’s important to be clear about what a defiant Obama II would offer, because it is both more and less than liberals are expecting. They may hope that Obama passes new job-creation measures in his second term. But he appears to have decided that the price of more short-term stimulus—more tax cuts for the rich, which Obama extended in return for stimulus in his December 2010 deal—is no longer tolerable. For better or worse, the president hopes the recovery is strong enough to stand on its own two feet. Where he can actually win without compromise, however, is in some ways more significant.
The economic crisis and Obama’s presidency pried open the economic gulf between the two parties, which had been slowly widening since Ronald Reagan, into an unbridgeable chasm. Mitt Romney’s secretly recorded remarks attacked the Democratic view of government responsibility—he practically spit out the words “they are entitled to health care, to food, to housing, to you name it”—with a visceral passion he cannot feign in public. Obama’s abhorrence of the moral premises of the Republican budget is equally genuine. Romney and Ryan find Obama’s plans to tax the rich to create an entitlement to basic medical care morally offensive, as Obama does of their plans that would sacrifice college educations for working-class kids and meals for poor families to clear room for more Sub-Zero refrigerators and private jets.
The war has been waged with escalating bitterness for more than two decades. Bill Clinton set out to restore the possibility of effective and activist government by bringing the deficit down through a mix of spending restraint and a tax hike on the richest Americans. George W. Bush destroyed the Clinton project, and left behind a government bleeding red ink and starved of revenue. Obama completed the welfare state by finally establishing access to health insurance as a basic right of citizenship.
In essence, the main domestic work of the past three presidents—Clinton, Bush, and Obama—is all on the ballot this November. Whichever party wins will have within its grasp the power to break the back of the other’s political-economic macro-strategy. Obama and Romney may like to say they can work their will through agreement and reconciliation with the other party. But the tools that will be at their disposal are too blunt even to acknowledge.