The outline of a deal, as President Obama announced, has been reached: The Bush tax cuts will be extended temporarily, with an extension of unemployment insurance, a payroll tax cut, and a temporary Estate Tax fix attached.
If such a deal goes through Congress, the tax cuts will be set to expire once again at the end of 2012, and virtually the same debate we're witnessing now--whether to extend the lower rates on higher earnings--will build up in the latter half of that year, as, coincidentally, the nation is swept up in the fervor of a presidential race.
Having pledged since 2008 not to extend the tax cuts on earnings above $250,000, President Obama will likely push for that same policy again, barring a drastic reversal, or perhaps a renewed focus on deficit-reduction that would lead him to seek higher rates across the board, not just on higher incomes. Given the GOP's united support for a $250K+ extension, there's no reason to think the party's 2012 presidential nominee would feel any differently.
The tax cuts were an issue in the 2010 midterms, but not by any means the biggest. The economy and health care reform took center stage, even as Tea Partiers and anti-tax groups criticized Obama for wanting to let the higher-income cuts expire.
That said, a presidential election is hotter and brighter than anything else. Everything is magnified. Americans for Tax Reform presently keeps a "Countdown to the Biggest Tax Increase in American History" clock on its website, and such rhetoric will only intensify as November 2012 approaches. Obama and his GOP opponent will discuss the tax cuts during debates. Third-party groups will spam their constituencies. The tax cuts will be a thing.
A reasonable question, then, is: If Democrats are losing this debate now, poised to give in to GOP demands, why would they think the situation will be any different in two years? There are no compromises in a presidential election, only winners and losers.
Obama isn't actually losing this debate, it's important to remember, in terms of public opinion. While Obama appears to be losing on the tax cuts, it mostly appears that way because he's not going to get his way over the GOP, and because the left is angry at him, voicing discontent with his willingness to compromise. But Obama is winning the broader popularity contest. People support his stance on the Bush tax cuts, according to recent polls.
CBS (Nov. 29 - Dec. 1) shows 53 percent wanting only the sub-$250K cuts extended, with 26 percent supporting a full extension. Gallup (Nov. 19-21) shows 44 percent supporting some income threshold (different figures were polled) and 40 percent supporting the GOP's plan. AP/CNBC (Nov. 18-22) shows 50 percent supporting Obama's plan and 34 percent supporting the GOP's.
So, while Obama appears to be losing this debate right now, it could be a winning issue for him in the 2012 presidential race.
The obstacles on Capitol Hill, meanwhile, will only grow. With a GOP majority in the House for the next two years, and with more Republican senators entering the Capitol in January, it won't be any easier for President Obama to get his way on the tax cuts in two years--at least before the election takes place.
As winners are fond of pointing out, elections have consequences. If Obama wins re-election, he'll probably get his way on the tax cuts in 2012. If a Republican wins, the current rates will remain in effect. This is just a guess, but it seems the 2012 race is set to determine the longer future of tax rates on the wealthy.
This post was updated at 6:45 p.m. on Monday.