The Deal Isn't So Bad, But The Rationale For It Is

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JONATHAN CHAIT AUGUST 1, 2011

The Deal Isn't So Bad, But The Rationale For It Is

The nickel summary of the debt ceiling deal is this: We don't know whether it's a good deal or a bad one until we see how President Obama handles the Bush tax cut expiration. The deal itself does not limit Obama's ability to secure a positive outcome if he plays his tax hand strongly, but it does diminish one's confidence that he'll do it. Here's Matthew Yglesias:

the president’s description of his own thinking was disturbing. He complained that Republicans had held the national economy hostage to their extreme demands. And he decided, in essence, that he was going to give in to the hostage-taking.

This raised a question in my mind not so much about that deal as about the next hostage go-round. And what we saw this weekend was another hostage scenario. And we saw an administration that didn’t really do anything in the intervening months between that frigid evening and yesterday’s torrid heat to solve their hostage problem. So now I’m of course left to wonder “what’s next?”

And moderate conservative Josh Barro makes essentially the same point:

I would note that the president called for a “balanced” approach to fiscal adjustment, and this is one. We now have $2.5 trillion in automatic, scheduled spending cuts* over the next 10 years. That comes on top of $2.8 trillion in automatic tax increases that are already scheduled through the year 2022, due to the expiration of the Bush tax cuts at the end of 2012. Indeed, Republicans have a good case that the automatic deficit reduction plan is not balanced but a bit tax-heavy.

I brought this up on Twitter today, and I got a lot of harrumphing from Democrats. There’s no way President Obama will ever let the Bush tax cuts expire, they say—he’ll get rolled again, just like he did in 2010.

To that, I have two responses. First, it’s not our fault you nominated this guy. Second, I’m not sure what good a balanced trigger as part of this compromise—one that included automatic tax increases, not just spending cuts—would have done, under this view. President Obama already has an automatic tax trigger that liberals believe he is afraid to use. What good would giving him a second trigger do?

I, personally, believe that Obama will play hardball on the Bush tax cuts in late 2012, assuming he gets reelected.

I think that's correct, because it makes political and policy sense for Obama to play hardball. But the inability to believe this with any confidence is unnerving. The Obama administration says it wants the committee to report out balanced deficit reduction:

If the Committee does not succeed in meaningful balanced deficit reduction with revenue-raising tax reform on the most well-off by the end of 2012, the President can use his veto pen to raise nearly $1 trillion from the most well-off by vetoing any extension of the Bush high income tax cuts.

That's from a fact sheet designed to reassure liberals. It doesn't reassure me. Obama's position has always been that he wants to end the Bush tax cuts on income over $250,000. After agreeing to extend those tax cuts last December, he swore he would block any subsequent extension. Now he's presenting the decision to block them as something he'll do only if the commission doesn't offer up other revenue. In other words, he's willing to trade that revenue for other revenue the commission can produce.

Why make that trade? Why offer spending cuts that are not scheduled to occur in return for revenue increases that will, in the absence of action, occur anyway? The administration's apparent eagerness to cut this deal -- the same deal John Boehner couldn't say yes to -- offers real reason for worry. Barro's analysis is shrewd, but its assumption that Obama is rationally pursuing the long-term interests of the center-left policy agenda may or may not be correct.

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posted in: jonathan chait, josh barro, matthew yglesias

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