Using projections from Moody’s analyst Mark Zandi, Paul Krugman came to the conclusion that the Obama-McConnell tax deal could end up hurting President Obama’s 2012 re-election bid by reducing growth rates in the critical months leading up to the election. From Krugman:
Look at the Zandi estimates: they show a boost to the economy in 2011, which is then given back in 2012. So growth is actually slower in 2012 than it would be without the deal.
Now, what we know from lots of political economy research — Larry Bartels is my guru on this — is that presidential elections depend, not on the state of the economy, but on whether things are getting better or worse in the year or so before the election. The unemployment rate in October 1984 was almost the same as the rate in October 1980 — but Carter was thrown out by voters who saw things getting worse, while for Reagan it was morning in America.
Put these two observations together — and what you get is that the tax-cut deal makes Obama’s reelection less likely. Let me repeat: the tax cut deal makes Obama less likely to win in 2012.
Early in the week, I came to a similar conclusion about the structure of this deal. Because it only contained a year extension of some of the working class relief, the deal could be a real political trap for Obama.
We have a situation where take-home incomes for millions might increase slightly for a year, only to have them decrease slightly the next year when the tax cuts expire. Having take-home incomes decrease in the lead-up to an election should be hugely costly to the incumbent president. What has been set up is likely a crisis in early 2011 when Obama has to either let the tax cuts expire for the middle class during a weak economy or give in to a Republican party with a huge upper hand. Neither will likely result in a good political outcome for Democrats.
Since the deal extends the Bush tax cuts for two years, but the unemployment benefits and many provision meant help the working class for only a year, it weakens Obama’s hand in 2011. He will have fewer bargaining chips, for example, he won’t even be able to hold the estate tax hostage to get a similar deal again.
A “deal” that, due to its structure, will likely hurt the President’s re-election prospects and sets up future political battles in which the President will have an even weaker negotiating hand is simply not a good deal. There is no way to not see this as a huge political and policy win for the GOP. . . after all, their big “concession” to Obama was a payroll tax cut–a Republican idea to begin with.