Tax Cuts Put Progressives in a Tough Place

Shortly after President Obama was elected, conservative talk show host Rush Limbaugh famously said that he hoped the new President would fail. The statement sparked a huge controversy, as it appeared that Limbaugh was speaking against America. After all, if Obama succeeded in turning around the nation after the financial crisis, then all Americans would be better off. Limbaugh attempted to clarify, saying that he hoped the policies that the President advocated would fail -- not the nation. Now that the tax cut bill has succeeded, progressives might find themselves in the uncomfortable position of having to hope for something similar.

Remember the 2009 stimulus package -- the one that cost $787 billion? It was touted as a spending package that would create millions of jobs. The Obama administration estimated that it would push unemployment down to 7% by the end of 2010. Republicans have few greater pleasures than smugly referring to the deeply flawed chart that accompanied this claim.

Naturally Republicans touted this as a failure of progressive policy. With a heavier emphasis on tax cuts, unemployment would have fallen faster, they say. The rejoinder by progressives, often provided by economist Paul Krugman, is that the stimulus wasn't big enough to avoid an increase in unemployment. Of course, there's no counter-factual to test either claim -- until now.

When the first stimulus was passed, unemployment was around 8%. Nearly two years later, it's at 9.8%. The second stimulus, the giant tax cut package passed Thursday night, will take effect with unemployment near double digits. If the rate declines significantly over the next two years -- and many economist have already said that it probably will by around 2% -- then you can expect Republicans to use the improvement as evidence of the power of keeping taxes low.

While wonks and economists might know that a more sophisticated analysis is needed to prove that one stimulus measure worked better than the other, the average American voter will probably find Republicans' claims compelling. They will say the recovery would have been harder if taxes were raised for anyone, including the rich. While the President reluctantly compromised with Republicans' to extend the cuts to everyone after getting some of his own demands, he alienated the progressive wing of his party in the process.

On some level progressives must now fear a strong economic recovery. Complex economic arguments, like showing that the recovery already had momentum before the tax cut package was put in place or showing that tax cuts for the rich played little to no part in creating jobs, won't be compelling to the average American. voters will remember how unemployment rose to double digits and stuck there after the Democrats' stimulus package took effect, but began finally falling when Republicans got their way.

In the 2012 presidential election, this will be a major issue. While both parties will argue for deficit reduction, Republicans will hope to do so by cutting spending while Democrats will want to raise taxes, especially on the rich. And Republicans will have some evidence on their side that will sound very compelling, even if fails to convince a handful of voters who want a deeper economic analysis.

What's a best-case scenario for progressives? They might want to hope for a double dip recession that hits sometime in 2011 and carries into 2012. Of course, this would almost certainly ensure President Obama loses re-election, but it would allow them to say: "See that! Those tax cuts were awful!" Fortunately for the U.S., that doesn't appear likely at this point. So instead, progressives will be left with little choice but to support a presidential candidate who they feel abandoned one of their chief economic paradigms, which will have likely made it even harder for them to argue against conservative economic theory.