The 2012 election campaign begins--two years early--with something like a consensus: it never seems to be unpopular to argue for reduced taxes, and the Senate squashed any thought of filibuster on the Obama-McConnell tax deal by a decisive 83-15 margin today.
I foresee that the angry House Democrats will respond by leaving the estate tax compromise out of their version of the legislation, as they have already passed a reinstatement of the tax at a higher level. This will begin a Congressional stare-down between the House Democrats and Senate Republicans: who will want the tax cuts more, enough to accept the other side's version of the estate tax? I don't know which will blink first, but as in any staring contest, it's just a matter of time, because both eventually would have to do it.
President Obama will get to sign a stimulus bill as his Christmas present, one larger than he should've expected. Though most quarters would deny him any credit for successful political intervention in this case, he may yet get some econometric love--for a President, the most valuable kind. If the 2011 economic recovery is strong, even if unemployment remains doggedly high, he could enjoy a surge of support that would make him a strong favorite for re-election.
The only question I have is how to turn off the gas. McConnell and Obama's agreement on two years for the extension of most of the tax reductions means that we will be facing the renewal issue again in 2012. I would argue that, regardless of whether the tax cut stimulus works this time or not, it will be high time to end all of the tax cut extensions then. But will there be any politician bold enough to agree with that? Doubtful.
I see Obama already pivoting--not to the right, but toward the hoop: the next ploy will be to re-work the tax code. If several large deductions are phased out, as the deficit reduction commission's various proposals suggest, tax rates won't need to rise to get more revenue. Mortgage holders and state income tax payers should beware.