Analysis: Obama may get political boost from tax-cut deal

WASHINGTON Fri Dec 17, 2010 2:52pm EST

WASHINGTON (Reuters) - President Barack Obama gained an important political advantage from a tax-cut compromise with Republicans that should help his 2012 re-election campaign if it gives the economy a needed boost.

The move to the center came at a cost. Obama's liberal base was left angered and demoralized by his agreement to extend Bush-era tax cuts, even for wealthier Americans, and he will have to work to patch up relations.

But the Republican rout of Democrats in November 2 congressional elections left Obama with little choice but to agree to a compromise with Republicans now rather than wait until next year when his opponents will have increased power.

As a result, experts believe Obama helped his own prospects with independent voters as he prepares to set up his re-election campaign next year and look ahead to 2012.

Congress gave final approval late on Thursday to the $858 billion package of renewed tax cuts and extended unemployment benefits that most analysts say should bolster the economy, but deepen the record deficit.

"I think it's a win-win for him," said Ipsos pollster Cliff Young. "Setting aside all the reaction to it on the left, I think it was the best thing he could've done given the circumstances. From an electoral standpoint, his chances of victory in 2012 really depend on a number of factors, but mostly it's about the economy."

Obama's main challenge going into the new year will be to bring down the stubbornly high 9.8 percent unemployment rate and bolster the fragile economy. But the deeper hole the tax package will dig in the budget deficit gives Republican Tea Party activists ammunition to criticize him.

White House officials say Obama has adjusted to the new political reality in the wake of the November 2 elections which handed Republicans control of the next House of Representatives and increased their seats in the Senate, and that the tax deal was proof the two sides can work together.

While unhappy at extending the tax cuts for the wealthy, they are pleased the compromise included a continuation of unemployment benefits and other items on the Democrats' wish list.

"Our hope is that the Republicans will continue to see it in their interest to seek areas of compromise. Certainly we will approach it that way," said one official. "It doesn't mean there won't be some unbridgeable gaps. No doubt we will have fights. But I think it certainly shows that there is a capacity to work together on some important areas."

MORE WINS TO COME?

With the tax deal done, the president may get more from the year-end legislative flurry than he expected. A likely victory on ending the ban on gays serving openly in the U.S. military -- the "don't ask, don't tell" policy -- may help placate liberals.

And a bipartisan agreement on renewing the START nuclear missile treaty with Russia seemed more likely after lengthy negotiations with Republicans by Vice President Joe Biden, the former senator who has proved to be a valuable mediator with his colleagues on Capitol Hill.

Andy Smith, a political science professor at the University of New Hampshire, said the tax-cut deal was proof of a 180-degree shift by Obama, because he had argued against tax cuts for the wealthy in his 2008 campaign and throughout 2010.

"It's an indication that he's willing to abandon his party in order to seek re-election," Smith said.

White House spokesman Robert Gibbs argued the tax compromise was not about politics but about Obama making decisions on "what is best for the country, what is best for the economy, and not give up his values."

"We've been very upfront that we got a better deal out of this than the other side did," he said.

Republicans see the tax-cut deal as the dawn of a new day in Washington when they can force Obama to listen to their side, after feeling they were shut out of the White House during Obama's first two years in office.

"If you want to ram 2,000-page documents through Congress, that's going to be harder now," said a senior Republican congressional aide. "If you want to work together and prevent tax hikes and reduce spending and get a handle on the debt, he's in a real good place to do that."

How hard a challenge will Obama face in 2012? An NBC News-Wall Street Journal poll this week said his overall approval rating was at 45 percent and that he leads prominent Republicans in hypothetical head-to-head match-ups.

Bill Galston, a Brookings Institution analyst who was a domestic policy chief for Democratic President Bill Clinton, said how the economy does in 2011 will go a long way toward determining Obama's re-election prospects.

"You don't need to know about American politics to know that a president's re-election prospects are affected significantly by what happens to the economy in the year prior to the election," he said.

(Editing by Vicki Allen)

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