JUNE 6, 2012
Republicans have worked themselves into quite a state of giddiness over comments by Bill Clinton (last night) and Larry Summers (this morning) that seem to favor extending all the Bush tax cuts when they expire on January 1. As Mitch McConnell told reporters today, “Bill Clinton’s remarks, and then Larry Summers remarks—it’s pretty obvious that the economy needs the certainty of the extension of the current tax rates for at least a year.”
Uh, no, it’s not. Even if you take literally Clinton’s and Summers’s imprecise musings, it’s hard to see how you get from their statements to McConnell’s. For one thing, neither endorsed McConnell’s timetable on the length of a possible extension—McConnell was just stating the GOP position and implying they supported it. Likewise, neither said anything about how the economy needs an extension of all the tax cuts to avoid perilous uncertainty. That, again, is just GOP agitprop dressed up as an economic theory.
Both were simply making the straight-forward Keynesian argument that it’s a bad idea to take money out of the economy, whether through spending cuts or tax increases, when you’re in a fragile recovery. In Summers’ formulation: “The real risk to this economy is on the side of slowdown, certainly not on the side of overheating, and that means we’ve got to make sure we don’t take gasoline out of the tank at the end of this year.” Clinton made essentially the same point: “What I think we need to do is find some way to avoid the fiscal cliff to avoid doing anything that would contract the economy now.” Nothing here about how tax-rate uncertainty paralyzes consumers and businesses, as McConnell would have it.
A more important question is whether Summers and Clinton believe it's dangerous to let even the upper-income tax cuts expire, or whether they believe only the tax cuts for families making under $250,000 really matter. Summers and Clinton subsequently claimed it was the latter, which is Barack Obama's position. Republicans, like House Speaker John Boehner, are claiming this is a flip-flop, and that Clinton (at least) meant the upper-income tax cuts must also be extended.
But there’s no good reason to believe this is the case. Both Summers and Clinton believe that upper-income tax cuts are pretty useless for stimulating the economy (since the affluent can spend just fine without tax cuts). If you don’t think a tax cut is stimulative, then there’s no reason you’d think letting it expire would damage the economy. The reason the Republicans have either missed this, or have chosen to ignore it, is that their political strategy for enacting tax cuts has always been to lump together stimulative tax cuts for the middle-class with non-stimulative tax cuts for the wealthy while claiming the entire package boosts the economy. But just because Republicans employ this spin, and may even believe it, doesn’t mean the rest of us should. (Set aside the Keynesian logic they militantly oppose in other contexts.)
The only shred of cover that Clinton gave McConnell-Boehner et al was when he added: “They will probably have to put everything off until early next year. That’s probably the best thing to do right now.” There’s a hint of a normative judgment here--the implication that temporarily extending all the tax cuts is a substantively good thing to do. But when you understand the political context, it seems much more likely that Clinton was making a tactical point than a normative one. After all, even if you believe that only the middle-class tax cuts should stay, you know the GOP won’t go along with that. Which leaves you with the option of extending all of them or none of them come January 1. Clinton, having decided that extending none would hurt the economy, was voicing a preference for the alternative. But saying you prefer one of two likely outcomes is very different from saying it’s the right outcome in some cosmic sense. Indeed, if you listen to the full back-and-forth on this, Clinton says that the point of an extension is to buy time for cutting a longer-term deal, not that the upper-income cuts are worth preserving in and of themselves, even temporarily.
In the end, the big problem with Summers’s and Clinton’s tax-cut riffs isn’t that they endorsed the GOP’s economic approach; it’s that they subtly undercut Obama’s leverage. That is, Obama’s best chances for cutting a favorable deal on taxes is either: 1. Convincing Republicans he’ll veto anything other than a middle-class-only extension and getting them to negotiate before January; or 2. Actually vetoing something other than a middle-class only extension and forcing the GOP to negotiate for the tax cuts’ return. Given that, it’s not exactly helpful to have two prominent Democrats say that vetoing tax cuts is a bad idea. But that’s a lot different from saying upper-income tax cuts are a good idea on the merits, which is what the GOP is claiming they said.
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