Financial Times

A Liberal Realism Lies Behind President Obama’s Tax Deal

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 percent in 2011 and as much as 1.5 percent in 2012.

Yet if left-leaning Democratic policy experts were pleasantly surprised, liberal activists were not. They saw only the continuation of Mr. Obama’s tendency to negotiate weakly, compromise prematurely, and treat core commitments as chits to be cashed. There are now even veiled mutterings about a “progressive” alternative for the 2012 presidential nomination. Such challengers usually fail – even stronger ones like Edward Kennedy in 1980 – but they also normally leave the incumbent fatally weakened. In the end cooler heads will likely prevail, as they did in comparable circumstances during the mid-1990s when liberal discontent rose over Bill Clinton’s strategy of “triangulation”.

Yet escaping a primary challenge is not the president’s only concern. This week’s agreement will mean little if it is just a one-off. In defending it, Mr. Obama distinguished between a politics that allows us to feel “sanctimonious about how pure our intentions are”, and his focus on results. This argument lies at the heart of his liberal realism, and is guaranteed to outrage those whose political views constitute a secular theology. But it is also a theory that must now become more prominent in other areas, if he is to win re-election.

Between now and his 2011 state of the union address in January, Mr. Obama must forge a comprehensive new economic and political strategy for the next two years. On the economy his challenge is to set the U.S. on a more sustainable fiscal course, while upping productive investments in education, infrastructure, and innovation. Fortunately, these two goals are not contradictory. For example, fundamental tax reform (last undertaken in 1986) could accelerate economic growth and increase revenues in ways that many conservatives could accept. Above all, he must restore confidence, by articulating a credible vision of American economic success, and lifting a public that is pessimistic about the future to an extent rarely seen in this country.

On the political front, Mr. Obama’s challenge is to prevent an open break with the left while convincing moderates and independents that he is the man they thought he was two years ago. Here he has one great advantage, namely that throughout his 2008 campaign he promised a new era of conciliation and co-operation across the lines of America’s hyper-polarized government. Recent surveys show that Americans want this at least as strongly today as they did when they elected Mr. Obama. So the president should stake out an agenda with which reasonable members of the opposition could agree, and invite them to join. One of two things will happen: either Republicans will spurn his outstretched hand, in which case Americans will see for themselves where the obstacles to co-operation lie; or they will grasp it, in which case the president will get high marks for leadership. He wins either way.

During the 2008 presidential campaign, Mr. Obama described himself as a “Rorschach test” in whose indistinct outlines diverse individuals and groups could discern their varying hopes. Two years into his presidency, his contours have clarified. His challenge now is to govern consistently as the liberal realist he has always wanted to be.