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FT: A liberal realism lies behind Obama's tax deal

Author: William Gallston
December 8, 2010

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William Galston of the Financial Times takes a look at the logic behind Obama's tax cut compromise.

Bending, if actually not breaking, a campaign pledge, President Barack Obama on Sunday announced a deal with Republicans to keep temporarily his predecessor's tax cuts for wealthy Americans. In exchange he won reductions in payroll taxes, extensions of middle-class tax measures, and incentives to boost investment. The left of the Democratic party reacted with cold fury, accusing the administration of squandering a winning hand without a fight. Yet even if Mr Obama reasoned he could not overcome Republican resistance, his decision reveals an increasingly clear governing philosophy: liberal realism.

It was liberalism that led Mr Obama to push for comprehensive health reform, disregarding the counsel of advisers and infuriating conservatives. But realism saw him jettison parts of the reform, to the dismay of liberal allies. The result was a bill that no other strategy could have obtained, but which pleased almost no one. The same approach shaped his latest negotiations: he gave Republicans what they wanted, but gaining unexpected benefits in return. Economists think this second stimulus will reduce unemployment by 1 per cent in 2011 and as much as 1.5 per cent in 2012.

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