EDITORIAL: Obama: I lost

OPINION:

A little over a year ago, President Obama explained that he could ram his leftist policy agenda through the legislative process for a simple reason. “I won,” he quipped at a meeting with congressional lawmakers. This week, the tables turned as the president negotiated a compromise with the GOP on extending the George W. Bush tax cuts for another two years. It’s the first sign that Mr. Obama recognizes he lost on Nov. 2.

The extension represents a tactical retreat for a White House which previously insisted that taxes on successful small businesses and businessmen need to be higher. The reversal was inevitable after the president’s Capitol Hill allies were routed at the ballot box. Rep. John A. Boehner, Ohio Republican, isn’t going to offer better terms after he takes the speaker’s gavel from Rep. Nancy Pelosi, California Democrat, in January.

At a press conference yesterday, Mr. Obama defended his decision to get the best deal he could under a Democratic majority, insisting he acted to save economic growth - but not in a supply-side sense. As he framed it in class-warfare terms, Mr. Obama only supports “middle-class” tax relief while Republicans only support tax cuts for the “wealthiest Americans.” Never mind that the latter category includes struggling small businesses that file under the top individual tax rate.

Mr. Obama also ignores the failure of the $814 billion stimulus in making a dent in long-term unemployment. The official jobless total rose to 9.8 percent last month from 9.6 percent, but the president stubbornly clings to the John Maynard Keynes playbook. Mr. Obama’s bold solution, outlined yesterday, is a one-year Social Security payroll tax reduction from 6.2 percent to 4.2 percent for employees (not employers) and an extension of unemployment benefits through 2011. This, he argues, puts cash in the hands of the public to spend, which will revive the economy.

While cutting the payroll tax in itself is a fine thing to do, it would be far more effective to reduce the amount of tribute a business must pay to the government for the privilege of retaining a new employee. Focusing government efforts on easing the hiring burden would be a better use of the $54 billion that will be blown on continuing extravagant 99-week unemployment benefit plans. It’s time for this failed policy to change.

Just a few months ago, Mr. Boehner offered a two-year tax compromise much like the latest proposal. White House officials at the time rejected the move as irresponsible. “This is nothing more than a throwback to Bush-era budget gimmicks that helped get us into the fiscal mess we’re in today,” White House Deputy Communications Director Jen Psaki wrote in a Sept. 8 blog post on whitehouse.gov.

So this is now the president’s gimmick. On balance, the compromise will do far more good than harm, providing needed certainty to the marketplace at least until 2012. It’s not clear, however, why Mr. Obama would want tax cuts at the center of the 2012 presidential contest. This trick may be the president’s undoing.