December 31, 2012,
Conceder In Chief?
OK, I’ve had my own sorta-kinda briefing on
the apparent fiscal cliff deal, and I’m pretty much with Noam
Scheiber. Viewed on its own, it’s a bad and upsetting deal but not as
terrible as initial rumors had it. But the strategic consequences are likely to
be very bad indeed, and in very short order too.
As background, it’s important to understand
what Obama clearly could have gotten just by going over the cliff. Basically,
he could have gotten the whole of the Bush high-end tax cuts reversed, which
would mean close to $800 billion in revenue over the next decade. What he
couldn’t get, or at least couldn’t count on getting, were various spending
items. This included the extension of unemployment benefits and various
“refundables” on things like the Earned Income Tax Credit, that is, pieces of
tax legislation that end up having the government cut checks to families
instead of the other way around.
So what Obama appears to have done is trade
away part of the revenue from high-income taxpayers in return for some of the
spending items he wanted. Extended unemployment benefits for a year, and the
refundables either extended in perpetuity or for 5 years.
The revenue loss seems to be on the order
of $150 billion, or maybe a bit less. The reasons it isn’t bigger is that while
the threshold for the top marginal rate is moving up to 450K, the thresholds
for other things — phaseout of deductions, higher taxes on dividends and
capital gains — aren’t going up, they’re staying at 250K.
And at least one positive thing can be
said: no giveaway on Social Security, Medicare, or Medicaid. Basically, no
spending cuts at all.
If you want think about the longer-term
implications here, they’re ambiguous. The deficit is no problem right now, but
there will eventually be a collision between the rising costs of social
insurance programs and the inadequacy of the revenue base. Something will have
to give.
There were two big risks, from a
progressive point of view, in Obama’s eagerness to get a Grand Bargain. One was
that he would allow the Bush tax cuts to be locked in, making it very hard to
get additional revenue; the other was that he would give in on fundamental
benefit cuts. Well, he did #1, partially, but didn’t do #2 at all. This sets up
a future confrontation: it will be very hard for progressives to raise taxes,
but also very hard for conservatives to cut those social programs.
I suppose the best case you can make here
is that raising rates on the top 2 percent was never going to be enough anyway,
so Obama getting less from that than he should have isn’t that big a deal. And
the nightmare in which he cut Medicare and/or Social Security, only to have
Republicans run against those cuts in 2014, seems to have been averted.
OK, now for the really bad news. Anyone
looking at these negotiations, especially given Obama’s previous behavior,
can’t help but reach one main conclusion: whenever the president says that
there’s an issue on which he absolutely, positively won’t give ground, you can
count on him, you know, giving way — and soon, too. The idea that you should
only make promises and threats you intend to make good on doesn’t seem to be one
that this particular president can grasp.
And that means that Republicans will go
right from this negotiation into the debt ceiling in the firm belief that Obama
can be rolled.
At that point he can redeem himself by
holding firm — but because the Republicans don’t think he will, they will play
tough, almost surely forcing him to actually hit the ceiling with all the costs
that entails. And look, if I were a Republican I would also be betting that
he’ll cave.
So Obama has set himself and the nation up
for a much uglier confrontation than we would have had if he had set a
negotiating position and held to it.
Update: I
should mention that on one issue, the estate tax, the problem is apparently
with the Senate; there are, unfortunately, some heartland Dem Senators who are
extremely solicitous of the handful of super-wealthy families in their states,
so that Obama’s people don’t think they can get a majority for higher taxes
here. It’s bizarre: states like New Jersey have far more large estates, not
just total but per capita, than states like Montana, but it’s the Senators from
the latter that are eager to preserve the inherited privileges of the few.
