“Wait Until That Deal Come Round”

Jon Ward at The Daily Caller:

President Obama and congressional Republicans have reached a tentative deal to extend the Bush tax cuts for all income levels and are presenting the proposal to congressional Democrats Monday afternoon, The Daily Caller has learned.

The deal will extend the current tax levels for two more years, preventing taxes from going up on any income levels, despite the wishes of many liberal Democrats — including Obama — that individuals making more than $200,000 a year and families with more than $250,000 a year in income see their rates go up.

In exchange, Republicans have agreed to extend unemployment insurance benefits for an additional 13 months.

Obama presented the proposal to Democratic congressional leaders at the White House Monday afternoon, seeking to obtain their approval for the deal.

Philip Klein at The American Spectator:

This year’s Republican landslide was rooted in the party’s ability to forge a coalition of independents and more conservative Tea Party voters, even though these groups don’t always neatly overlap. The clear strategy of the White House in the coming two years is to try and force Republicans to take stances on issues that would highlight the differences between these groups and drive them apart. One potential issue for the White House to exploit is extending unemployment benefits, a measure which many conservatives (rightly, in my view) object to, but which is more popular among the broader population. Republicans were likely to eventually cave on this issue anyway, because they’re wary of being portrayed as uncompassionate and extreme, a caricature that haunted Newt Gingrich and House Republicans after the 1994 GOP takeover. Under normal circumstances, Republicans’ caving on unemployment benefits would probably trigger a backlash on the right, but now that Republicans seem to have agreed to an extension as part of a larger deal to extend the Bush tax cuts, that criticism is likely to be a lot more muted. Now, instead of the attention being on Republicans, all of the focus is going to be on Obama’s more significant capitulation. Basically, one way or another, there was going to be an unemployment extension, but Obama has now made it a lot easier for Republicans to justify it to their base.

Michelle Malkin

Chris Good at The Atlantic:

The tax cuts were an issue in the 2010 midterms, but not by any means the biggest. The economy and health care reform took center stage, even as Tea Partiers and anti-tax groups criticized Obama for wanting to let the higher-income cuts expire.

That said, a presidential election is hotter and brighter than anything else. Everything is magnified. Americans for Tax Reform presently keeps a “Countdown to the Biggest Tax Increase in American History” clock on its website, and such rhetoric will only intensify as November 2012 approaches. Obama and his GOP opponent will discuss the tax cuts during debates. Third-party groups will spam their constituencies. The tax cuts will be a thing.

A reasonable question, then, is: If Democrats are losing this debate now, poised to give in to GOP demands, why would they think the situation will be any different in two years? There are no compromises in a presidential election, only winners and losers.

Obama isn’t actually losing this debate, it’s important to remember, in terms of public opinion. While Obama appears to be losing on the tax cuts, it mostly appears that way because he’s not going to get his way over the GOP, and because the left is angry at him, voicing discontent with his willingness to compromise. But Obama is winning the broader popularity contest. People support his stance on the Bush tax cuts, according to recent polls.

CBS (Nov. 29 – Dec. 1) shows 53 percent wanting only the sub-$250K cuts extended, with 26 percent supporting a full extension. Gallup (Nov. 19-21) shows 44 percent supporting some income threshold (different figures were polled) and 40 percent supporting the GOP’s plan. AP/CNBC (Nov. 18-22) shows 50 percent supporting Obama’s plan and 34 percent supporting the GOP’s.

So, while Obama appears to be losing this debate right now, it could be a winning issue for him in the 2012 presidential race.

Ezra Klein:

The compromise the White House is negotiating on the Bush tax cut is looking more and more like the White House’s opening gambit in the 2012 campaign.

The White House has stopped negotiating for ideal — or even acceptable — tax policy and moved to negotiating stimulus policy. The tax cuts for income over $250,000 will pump about $100 billion into the economy over the next two years. It’s not the most stimulative way to spend $100 billion, but it’s more stimulative than not spending it, or than raising taxes. And it won’t be alone.

The deal isn’t done, but right now, Democrats look likely to get a 13-month extension of both unemployment insurance and many of the tax breaks built into the stimulus (Making Work Pay, the bump in the Earned Income Tax Credit and the Child Tax Credit, the business tax breaks and so on). That totals about $180 billion over two years. So if the White House gets the deal that the early reports suggest are close — and that they seem to think they’ll be able to get — this is a two-year stimulus package that approaches $300 billion. [Update: Just to be clear, that's $300 billion for tax cuts for income over $250,000, and tax extenders. Add in the rest of the tax cuts -- which I left out because they're already at consensus -- and it's closer to $750 billion. So the $300 billion is the marginal cost over the tax cuts for income under $250,000.]

In other words, rather than paring the tax cuts and the deficit back, they’re making both larger. If you’re of the mind that the economy needs all the extra help it can get right now — and you should be — this is a lot more extra help than anyone expected Republicans and Democrats would agree to give it. And from a political perspective, if you believe that what matters for elections is the economy — and you should — then it’s worth it for the White House to lose news cycles in 2010 if it means adding jobs by 2012.

Digby:

So it’s done. Would it be unseemly for me to say I told you so? (My miscalculation was that they would also be able to hold unemployment insurance hostage along with the middle class tax cuts, which was really brilliant considering that it’s Christmas and they can all go home now warm in the knowledge that God blesses us one and all. Damn.)

Ezra sets forth what I would imagine is the thinking among Democratic insiders, namely that tax cuts for the rich are a form of stimulus and since we can’t get any kind of real stimulus, they have to extend them. The problem here is that while tax cuts are often used for stimulus, it doesn’t seem to have worked all that well in this recession, although it may have mitigated the worst of it at its depth. But tax cuts for the wealthy have been shown over and over again to be the least effective form of stimulus and coming as they are at a time when the wealthy have recovered very well and their investments are booming (while the rest of the country is still swimming in debt and suffering from lack of jobs, the housing slump and underemployment) they are likely to be even less stimulative than usual. I really don’t think even they believe this rationale.

So why? I think it’s a basic belief in “markets” as the savior of all economic problems and a broader fear of further angering the business community and the financial sector: they hear the threats loud and clear — “unless you give us our tax cuts, the country gets it.” The corporations and Wall Street are already sitting on a boatload of cash which they have no need to distribute as long as they are making big profits anyway. They simply do not believe they should have to pay higher taxes so they are holding a metaphorical gun to the head of the government and daring it to thwart them.

Jon Bernstein:

Part of the confusion is that everyone is so used to seeing Republican rejectionism that they don’t recognize accommodation (that is, willingness to make a deal that gives both sides policy gains) when they see it.  Perhaps another part of that confusion is that this may be an issue in which liberal activists really do part ways with the bulk of Democratic voters.  It’s surely the case that among liberal activists, climate/energy, immigration, and several other issues are a much higher priority than the tax cut pledge.  But for many Obama voters, that’s probably not true.

I’d also say that I agree with those who believe that the Democrats’ spin on this issue has been far from impressive, although as usual it probably made little difference.  Still, it’s made no sense at all for Barack Obama and the Democrats to publicly support anything called “the Bush tax cuts.”  From the start, or even from summer 2010, it sure seems that it would have been a lot smarter to invent something called “the Obama middle class tax cuts” and supported that as an alternative to Bush tax cuts (or, even better, Bush tax increases).  Indeed, Obama could have outbid the Republicans on the “middle class” portion of the tax cuts, opposed tax cuts for the rich, and still had plenty of money left over.  Framing the whole thing along GOP lines never made any sense.  On the other hand, at the end of the day the Democrats’ position was still popular, so it’s not easy to see what was lost in losing the spin war.

Back to the analysis…the case rests on four assumptions: that Republicans care a lot about upper level tax rates; that Republicans are basically indifferent about tax rates for everyone else; that Democrats care quite a bit about tax rates for everyone outside of the wealthiest Americans; and that neither side has the votes to impose their preferred policy on their own.  We don’t really know whether any of those assumptions is correct — we get to hear everyone’s rhetoric, but that doesn’t always match with their real intent.  However, if these assumptions are correct, then the way this issue has played out makes lots of sense.

One question to bear in mind as you watch: Where does this temporary fix leave him during campaign 2012? He’s going to swear up and down that there’ll be no more tax-cut extensions for the wealthy, come hell or high water, but of course he made the same promise during campaign 2008 and yet here we are. His base will have every reason to believe that he’s lying to them — and with good reason, given Ben Bernanke’s dire warning that it’ll be four or five years at least until unemployment returns to “normal” levels. If Obama’s willing to compromise now in the name of stimulus, why not again in 2013? Stand by for updates.

About these ads

Leave a comment

Filed under Economics, Politics, The Crisis

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s