The pea under the shell game

Is Obama’s new promise to lower middle-class tax rates credible?

President Obama, earlier today:

So my message to Congress is this: Pass a bill extending the tax cuts for the middle class. … As soon as that gets done, we can continue to have a debate about whether it’s a good idea to also extend the tax cuts for the wealthiest Americans. … And then next year, once the election is over, things have calmed down a little bit, based on what the American people have said and how they’ve spoken during that election, we’ll be in a good position to decide how to reform our entire tax code in a simple way that lowers rates and helps our economy grow, and brings down our deficit — because that’s something that we’re going to have to do for the long term.

Of course, he had an opportunity to do just that — lowering rates and eliminating tax breaks — by embracing Simpson-Bowles, but he passed.

Also, recall what liberal journalist Noam Scheiber wrote in his recent book, The Escape Artists: How Obama’s Team Fumbled the Recovery.

Scheiber reveals that in the fall of 2009, Obama’s chief congressional lobbyist hatched a plan to extend the middle-class Bush tax cuts for two years while letting the upper-income tax cuts expire on schedule.

If Congress couldn’t devise a way to pay for the $2.3 trillion extension of the middle-class cuts, they would all expire in 2015. Schiliro easily sold White House budget director Peter Orszag on the idea. “[Orszag] believed the only practical way to balance the budget was to repeal all the Bush tax cuts, not just the upper-income variety.”

Orszag then presented the plan to Obama:

… the administration’s chief wonk—Barack Obama—was intrigued. He asked a series of encouraging questions about how the proposal would work. According to two sources in the room, he was taken with both the political merits—that is, putting Republicans on the defensive—and the policy rationale of lopping trillions off the deficit. He gave no indication that he was troubled by the plan’s most explosive feature: that it would likely break a central campaign promise—not raising taxes on the middle class—one Republicans would surely wrap around his neck with populist glee.

The White House political team and Vice President Joe Biden eventually helped kill the idea. Intriguingly, however, Scheiber thinks that if Obama is reelected, letting all the Bush tax cuts expire—which will happen automatically if Congress does nothing—”may simply be too tempting to pass up.” As Scheiber explains:

What is clear is that, having been tempted to end all of the Bush tax cuts in 2009, the president would only find the idea more attractive were he to win a second term. At that point, he will never again stand before the voters, at least not as a presidential candidate. There would be nothing to stop him from flouting a campaign promise, even one as sensitive as his tax pledge.

So I think it is significant that Obama is calling for just a one-year extension of the middle-class BTC and permanent expiration of the rest. The middle-class may catch a break in 2013 if Obama is reelected, but they might want to start saving for their 2014 tax bill.