How the White House cut its deal and lost its base

By Ezra Klein

If you look at the numbers alone, the tax cut deal looks to have robbed Republicans blind. The GOP got around $95 billion in tax cuts for wealthy Americans and $30 billion in estate tax cuts. Democrats got $120 billion in payroll-tax cuts, $40 billion in refundable tax credits (Earned Income Tax Credit, Child Tax Credit and education tax credits), $56 billion in unemployment insurance, and, depending on how you count it, about $180 billion (two-year cost) or $30 billion (10-year cost) in new tax incentives for businesses to invest.

But that's not how it's being understood. Republicans are treating it as a victory, and liberals as a defeat. Which raises two separate questions: Why did Republicans give Obama so much? And why aren't Democrats happier about it?

Let's start with the Republicans. For one thing, the things they wanted were things they really, really wanted. A number of sources with direct knowledge of the negotiations have fingered the estate tax as the major player in the size of the deal. "Republicans were extremely eager to get benefits for the top tenth of a percent of Americans," says one senior administration official.

It was the estate tax, in this telling, that secured Republican support for, among other things, the two-year extension of the refundable tax credits and the payroll tax cut. Republicans believe that the two-year extension of the estate tax at Lincoln-Kyl levels will turn into a permanent extension of the estate tax at Lincoln-Kyl levels. So they attached much more importance to it than the price tag might suggest.

And it went beyond the estate tax: Conservatives saw the extension of the tax cuts as an important pivot point in American politics -- full stop. As my colleague Jennifer Rubin puts it, Republicans "won the philosophical point (tax hikes impede economic growth) and, candidly, are more than delighted to have a repeat of this debate for the presidential campaign in 2012." The Obama administration didn't see the tax cuts as a philosophical point, and is similarly convinced that a repeat of this debate in 2012 -- when the economy is better and the deficit is worse -- will favor their side. So rightly or wrongly, they judged the two-year extension as much less of a loss than the Republicans judged it a win -- and that gave the Democrats leverage on the rest of the package.

Meanwhile, the partisan electricity of the past year had obscured a simple fact: Much of what the Obama administration wanted was not that noxious to conservatives. They were tax cuts, many of them for businesses. Indiana Gov. Mitch Daniels had previously proposed both a payroll tax cut for 2011 and the tax breaks for business investment. Republicans have frequently said that they don't even oppose unemployment insurance.

In all these cases, Republicans have argued that it's not the policies they oppose -- it's that Democrats aren't paying for them. But perhaps the most important enabler of the deal is that Republicans don't care about paying for them, either. The basic deal was that if the Obama White House would give the Republicans their unpaid-for tax cuts, Republicans would give the Obama White House their unpaid-for tax cuts.

To put this in perspective, consider that last week, all Washington could talk about was the potential for a deal on deficit reduction. This week, it actually got a big deficit deal -- but it was a deficit-expansion deal. In the world that politicians claim they live in -- where the deficit is the overriding issue -- the deal couldn't have worked. But we don't live in that world. In this world, tax cuts, not deficits, are the Republicans' central concern, and stimulus, not deficits, obsesses the Democrats.

Which brings us to the liberals. My conversations with various progressives over the past 24 hours have convinced me that the problem is less the specifics of the deal -- though liberals legitimately dislike the tax cuts for the rich, and rightly point out that Obama swore to let them expire -- than the way in which it was reached. Put simply, Obama and the Democrats didn't fight for them. There were no veto threats or serious effort to take the case to the public.

Instead, the White House disappeared into a closed room with the Republicans and cut a deal that they'd made no effort to sell to progressives. When the deal was cut, the president took an oblique shot at their preferences, saying "the American people didn’t send us here to wage symbolic battles or win symbolic victories." And this came a mere week or two after the White House announced a federal pay freeze. The pattern, for progressives, seems clear: The White House uses them during elections, but doesn't listen to, or consult them, while governing. In fact, it insults them, and then tells them to quiet down, they got the best bargain possible, even if it wasn't the one they'd asked for, or been promised.

If you're worried about stimulus, joblessness and the working poor, this is probably a better deal than you thought you were going to get. "It’s a bigger deal than anyone expected," says Bob Greenstein, president of the Center on Budget and Policy Priorities. "Both sides gave more expected and both sides got more than expected." The White House walked out of the negotiations with more stimulus than anyone had seen coming. But they did it in a way that made their staunchest allies feel left behind, and in many cases, utterly betrayed.

That the Obama administration has turned out to be fairly good at the inside Washington game of negotiations and legislative compromise and quite bad at communicating to the public and keeping their base excited is not what most would have predicted during the 2008 campaign. But it's true.

Photo credit: J. Scott Applewhite/Associated Press