And the Long Term Consequences of Obama's Capitulation are Worse

First, it appears that the Republicans have structured the deal to force states into bankruptcy in order to destroy the public employee unions:

Congressional Republicans appear to be quietly but methodically executing a plan that would a) avoid a federal bailout of spendthrift states and b) cripple public employee unions by pushing cash-strapped states such as California and Illinois to declare bankruptcy. This may be the biggest political battle in Washington, my Capitol Hill sources tell me, of 2011.

That’s why the most intriguing aspect of President Barack Obama’s tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program. BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31. And my Reuters colleagues report that a GOP congressional aide said Republicans “have a very firm line on BABS — we are not going to allow them to be included.”

This is juxtaposed with proposals mooted among the Conservative Nomenklatura, most notably in The Weekly Standard, that Congress enact laws allowing states to declare bankruptcy, which in turn would allow them to unilaterally break union contracts.

Additionally, you have the withholding tax holiday, which legitimizes schemes to defund Social Security as a prelude to gutting it, as Nancy Altman, co-director of Social Security Works, so ably notes:

Given that unwillingness to raise taxes by less than a nickel on every dollar earned over $1 million, I find it unfathomable that a more conservative Congress, in two years, in an election year, will increase the payroll tax by 2 percent on the very first dollar, and every other dollar up to the cap, earned by virtually every single worker in the country. Consequently, I think we have to assume that the payroll tax holiday will be extended beyond the two years the president is proposing and quite likely could become permanent.

That means that the federal government will have to continue to transfer $120 billion to the Social Security trust funds each and every year even as it has to transfer more and more interest payments as the trust funds continue to grow and as interest rates return to more normal levels. Unless Congress acts to restore Social Security to solvency, the Treasury bonds held in trust will have to be redeemed, again on top of that new $120 billion transfer from the general fund, starting fifteen years from now, assuming Congress even continues to make the $120 billion every year before that point. These dollars will be competing with dollars for defense, environmental protection, education, school lunches, Food Stamps, Medicare, Medicaid, SSI, Pell grants for low income college students, and every other good and service financed by the federal government.

A permanent two percent cut in Social Security contributions doubles the 75 year projected shortfall. Scrapping the cap (eliminating the $106,800 maximum on earnings), tonally eliminates the shortfall today. If FICA is cut by 2 percent, scrapping the cap gets Social Security only halfway there.

I'm a cynic, and I believe that this is a feature, and not a bug.

On labor, the Obama administration has pointedly sat on its hands with regard to the Employee Free Choice Act (EFCA), and the Obama Department of Education is more virulently anti-union than Bush's Education Department ever was, as mind boggling as it sounds.

As to Social Security, anyone who appoints Alan Simpson and Erskine Bowles to a "deficit reduction" (catfood) commission, clearly wants to gut that gem in the crown of the New Deal.

These flaws in the "compromise" are features, not bugs. 

After seeing this happen repeatedly, I think that actual intent is a more coherent explanation than simple incompetence.

Obama wants these things to happen.

H/t Yves Smith for the first link.