White House Surrenders on Bush Tax Cuts

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Dealing "with the world as we find it,"  President Barack Obama's top adviser suggested to The Huffington Post last night that the administration is ready to back a temporary extension of the entire Bush tax cuts, contradicting the president's longterm pledge to let tax rates rise on the top two percent.

This is surprising news -- not that the White House is accepting a temporary extension, but that they're announcing their willingness to accept a temporary extension.

To avoid confusion, let's split the rest of this post up into politics and policy.

This is questionable politics. You could make the case that, with the president's self-critical performance on 60 Minutes and this announcement, the White House is trying to send the post-midterm message that it "gets it." People are angry and looking for the president to show he understands the mistakes he's made, and they're looking for subtle changes in direction. Bending toward the middle on the Bush tax cuts would be just that kind of subtle change. But what does the White House gain by ceding territory on the Bush tax cuts if it thinks higher taxes on the rich are necessary to repair the medium-term deficit? Wouldn't it be better to hold out and require some goodie -- say, unemployment benefits extension -- in return for its reluctant support for a full tax cut extension?

Still, this is acceptable budget policy. In fact, it's the preferred budget plan of the former budget director of the White House, Peter Orszag.* A temporary extension is the only short-term/long-term solution to keep taxes low in the weak recovery while forcing lawmakers to pick up tax reform in two or three years so that we can, finally, administer some sanity to our tax code with debt rising dramatically.

Update: Axelrod clarifies to National Journal: "We're willing to discuss how we move forward, but we believe that it's imperative to extend the tax cuts for the middle class, and don't believe we can afford a permanent extension of tax cuts for the wealthy." Again, the politics here is confusing. Axelrod has updated his position from "We're willing to join Republicans but don't want to" and "We're willing to join Republicans, but don't want to, and won't necessarily to do so." Is that that a useful bargaining position?

*Update II: I'm getting dinged in the comment section for saying Peter Orszag would prefer a middle-class tax cut extension without preserving rates for the rich. In his New York Times column, he preemptively endorsed a plan to extend the full thing, but also said he would prefer to extend only the middle class cuts, a point he has clarified many times since. Thanks to Boomaze for fighting with me in the comment section while I was suffering from brief illiteracy and obstinacy.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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