JONATHAN CHAIT JULY 19, 2011
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I have returned from my beach vacation to discover that we're still using dollars as currency rather than sea shells (drat!), the most likely debt ceiling scenario involves $1.5 trillion in spending cuts, and Ezra Klein thinks this is far worse for the White House than a $4 trillion Grand Bargain:
For Republicans, this plan is something close to the best of all possible worlds (sorry, but I do not consider a world in which "Cut, Cap, and Balance" passes to be a possible one): It's all spending cuts and no revenues. It's a little plan that denies the Obama administration the political and substantive benefits of a big plan. It's a multi-part plan -- which is more important than people realize -- that forces Democrats to take three hard votes between now and the election, and almost ensures that deficit reduction will be an issue in 2013 and beyond. It's a plan that smartly pockets more than a trillion dollars in spending cuts Democrats can sort-of accept and only then begins a grand bargain process, ensuring that if there's a grand bargain later, it will cut far deeper into the bone of Democratic priorities.
Is this really worse than a Grand Bargain? I'm sure the Obama administration thinks so, but I disagree. Let's consider both the politics and the policy in order.
First, politics. Klein argues that a Grand Bargain would means deficit reduction is no longer an issue in 2013 and beyond. If that's true, it means that the main issue will be the economy, right? That's not a good thing for Obama. What Obama wants is for the election to focus on policy contrast. If he signs a $1.5 trillion domestic spending cut, he can pretty convincingly position himself in the center. From that position, he can argue that we now have two choices going forward -- a balanced program with defense spending cuts and higher taxes on the rich, or the radical Paul Ryan plan. Alternatively, if deficit reduction really were off the table, it would be far easier for Republicans to portray their vote for the Ryan budget as some kind of bold statement or youthful indiscretion or post-college prank than a governing agenda for voters to endorse or reject.
Second, and more important, policy. The single largest impediment to good public policy over the next decade is that there's simply not enough revenue to fund the government at adequate levels. Budgets that assign insufficient outlays to social programs can be changed, because spending programs tend to command the support of the public and/or interest groups. But ginning up more revenue is extremely hard. Middle-class tax hikes are unpopular, and upper-class tax hikes run into determined elite opposition. The Grand Bargain would lock in revenue levels that just won't work. Obama may think that a big deficit deal will revive the possibilities for new spending initiatives, but it won't conjure up the money to pay for it.
The only chance Obama has to escape this trap is to maneuver the Republicans into killing off the middle-class tax cuts, by refusing to compromise on tax cuts for the rich. Failing that, the only two fiscal options are high deficits or insufficient outlay.
The Grand Bargain would restore the revenue from the Bush tax cuts on taxable income over $250,000. That's not really enough revenue. What's more, it's revenue Obama can get any if he wins re-election, be refusing to sign a tax cut extension. And if he loses, the next Republican president will almost certainly pass another tax cut for the rich. Indeed, a Grand Bargain will simply free up more fiscal headroom for such a tax cut, just as Bill Clinton's fiscal responsibility enabled George W. Bush to enact a slew of debt-financed tax and spending initiatives. Either way, securing Republican agreement to capture the revenue from the expiring Bush tax cuts for the rich is worth very little to Obama. It would deprive him of an election issue where he can draw a strong and popular contrast, and furnish him with little actual policy benefit.
7 comments
Chait, letting all the Bush tax cuts expire might be good policy, but you don't seem to be willing to recognize that Obama does not want to do it and will not let it happen. He seems to take his pledge not to raise taxes on the "middle class", very broadly defined, all too seriously. As I read his studiously vague pronouncements and proposals re tax reform, he is not even willing to use reduction of tax expenditures to raise revenue from anyone but the wealthiest.
- adsprung
July 19, 2011 at 11:49am
Au contraire, ad, I think that if reelected, Barack Obama will let the cuts expire.
- liberalref
July 19, 2011 at 12:36pm
Chait is right. Time at the beach must have cleared his mind. Anyway, I am still holding out hope that Obama will eventually offer the Obama tax plan (rather than simply endorsing pieces of somebody else's tax plan), a plan that includes tax increases for those at the top, tax cuts for those at the bottom (which means more payroll tax cuts because that's the tax they pay), and a combination of temporary tax cuts (in the payroll tax) and permanent reduction in the marginal tax rates for those in the middle.
- rayward
July 19, 2011 at 1:00pm
So we let the Bush-era tax rates expire, thus restoring the Clinton-era tax rates. Then we Democrats propose lowering the rates for income under a quarter million bucks. If the Repubs block it (assuming they retain control of the House), then it's their fault. And please note that we Democrats should never use the phrase "Bush tax cuts". A "tax cut" sounds like something people want to keep. The correct way to pose the issue is: "given the looming medium-to-long-term deficits, do we keep the Bush-era tax rates, or return to the Clinton-era tax rates". Or to put it another way: "the President is proposing that, for income over a quarter-million bucks, we return to the rates we had in the 1990s." Let's frame this issue properly, OK?
- bjones
July 19, 2011 at 1:20pm
All good points. There's one thing not being mentioned though -- unemployment. If the Republicans get their spending cuts, the recovery will slow further. And it's unemployment that the Republicans will crow about in 2012. They successfully ignored deficits until December 2012, and they'll ignore them again, but they'll lay unemployment at Obama's feet. Not that they would have done any better, after all, we're basically running on Republican policies as it is, since they keep holding America hostage until Obama folds. But once the Debt-Ceiling is raised, the Republicans will be crowing it's all Obama's fault, all the time.
- AllanL5
July 19, 2011 at 1:32pm
When did Republicans stop crowing it's all Obama's fault? Besides, budgets are the responsibility of the House, and when the House was run by democrats 09-10 the economy started recovering. When republitards took over 11-12, economic policies changed and the recovery died. This is a debate republicans lose from the start, unless some erstwhile jackaninny democrat snatches defeat from the jaws of victory. Just return capital gains taxes to somwhere between Reagan Era levels and Clinton era levels. Then lets see what kind of income/payroll/marginal tax rate hikes/cuts we need after unemployment is down to tolerable levels.
- GSpinks
July 19, 2011 at 5:08pm
I think Chait is making a fundamental error in assuming that letting all the Bush tax cuts expire after the 2012 elections is free of political cost for Obama. Sure, it might seem so *after the election and assuming he has already won*, but in reality the GOP will be in full anti-tax demagoguery mode about the expiring tax cuts during the campaign if the issue is still on the table. I think Obama wants it off the table, period, and furthermore he wants to be able to point to his 2008 promise on keeping the tax cuts for income below $250k. If my reading is correct, then his insistence on the grand bargain makes a lot more sense, and it makes it easier to understand why he would be able to give up more concessions to get the longer term tax cut issue resolved. It would also further bolster his credentials as a sensible centrist, and provide a stark contrast to the cynicism and lunacy the Republican radicals and hostage takers. So I think a medium deal doesn't do very much for Obama, compared to the grand bargain or getting the Republicans to cave in amidst a circular firing squad.
- JEFF FREY
July 19, 2011 at 7:54pm