As Yogi Berra once said, "it's very hard to predict things, especially the future." And this poses a key problem in deciding how to assess the tax cut extension deal between Obama and the Republicans.
While the deal still strikes me as better than expected, a key question is what happens down the road. In particular, there are 2 important expiration dates, and what happens around each of them is critical. Possibly an important enabling factor for the deal was that Obama and the Republicans have different predictions about what will happen at each point, leading each to think that the deal was slanted their way.
The first choke point is the end of 2011, when the extension of unemployment insurance and the 2% payroll tax holiday are set to expire. Krugman calls this a really bad feature from Obama's political standpoint, since presidents often get rewarded in the polls for the rate of change in unemployment rather than its absolute level. Hence, stimulus that is withdrawn at the end of 2011 could be bad for him in 2012.
But does he have any political leverage to get them extended at the end of 2011 if the economy is still slumping? Obviously this could only come out of a deal with the Republicans, so there's a question about the carrot he can deploy, and about the stick. The carrot would presumably be extending the Bush tax cuts for at least another year. A second carrot, for the payroll tax but not UI part, is that it's a "tax cut." The stick is that, barring a deal, he attacks them in 2012 for having hurt the economy and indeed rejected extending a "tax cut" for millions of workers. But he hasn't exactly been throwing the equivalent of thunderbolts from Olympus in these rhetorical battles.
Anyway, the deal is much better for Obama (and also for the country) if he turns out to have some leverage at the end of 2011 than if he doesn't - assuming in either case that, as seems almost certain, the economy is still slumping and unemployment remains unacceptably high.
Then there's the 2012 question: what happens as Expiration Take 2 for the Bush tax cuts looms over the presidential campaign? If they've been extended for another year in exchange for UI and payroll tax continuation in 2012, this recedes a bit, but even then it will still be on the table.
During the campaign, presumably Obama has to say the same thing as in 2008, but with a "this time I really mean it" proviso that he would try to defend by citing the state of the economy as his excuse for what happened in 2010. Perhaps he could even tweak his talking point to say he'd increase the start point for the 39.6% rate bracket, along the lines of the Schumer "millionaires" version.
Obama loses big-time if this 2012 replay works out the Republicans' way, but not if it plays out more his way. A number of commentators have asked why we'd expect him and the Democrats to perform more skillfully this time around. But note that the point when they got hammered was in 2009 and 2010 (i.e., the legislative phase), rather than during the 2008 presidential campaign itself. The campaign part is easier (if he can sell voters on "this time is different"), since it's not about trying to get 60 votes, etcetera. But he would have to be very clear that he planned to veto any extensions and let all the tax cuts expire UNLESS the Republicans made the deal he requires, and he'd have to win (or at least not badly lose) the argument that this would make the expiration their fault.
The Republicans may be counting on the view that they are better card players than the Democrats. But again, this appears to be truer in the legislative phase than the presidential campaign phase. So at this point there may still be grounds for cautious non-pessimism.