PLANK DECEMBER 14, 2012
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The Times is reporting today that, if John Boehner and the White House can’t reach a deal on averting the fiscal cliff, the House GOP is considering passing a bill that would extend the middle-class Bush income tax cuts while enacting low tax rates (possibly even lower than the current rates) for unearned income like dividends, capital gains, and inheritances, and canceling the automatic defense cuts set to begin next year.
Without knowing much more about it, this strikes me as a very savvy move for the GOP. The party’s big problem, as Jonathan Chait has written, is that it has created a whole apparatus for preventing its members for voting for tax increases, whereas in this case the looming tax increases require no votes—simple inaction will result in massive tax hikes beginning on January 1. Chait refers to this as a Maginot Line—a seemingly formidable structure that opponents simply sidestep en route to wiping them out.
What the GOP proposal suggests is that Democrats may have built a Maginot Line of their own. The party’s messaging these last few months, and especially the president’s, has been all about how taxes must rise on the wealthy. It’s a formidable-seeming message because polls show that some 60 percent of the public agrees with this stance. But it turns out it may be just as easily sidestepped as the GOP’s position. By conceding on income tax increases for the top two percent while attaching a variety of other goodies on its wish list to the measure, Republicans would put Obama in a very difficult position.
In theory, of course, income taxes aren’t the only kind of tax increase for the wealthy that Obama has been agitating for. He also wants to raise taxes on capital gains, dividend income, and inheritances. So he would have a credible and consistent rationale for opposing a bill like this. But, as a practical matter, the income tax increases have been infused with such totemic importance in this debate that Obama would be hard-pressed to oppose the bill, regardless of how much he might disagree with its handling of unearned income.
Even worse, if Obama were to go along, it would set up the exact wrong dynamic going forward. I’ve argued that in order to prevent the GOP from destabilizing the economy by resorting to extortion next year—that is, demanding enormous cuts in entitlements before it will agree to raise the debt limit (the failure of which could trigger a financial crisis)—Obama needs a fiscal cliff outcome that results in a sweeping public repudiation of the GOP and its tactics, something that can only be accomplished by going over the cliff and bringing public pressure to bear on the GOP until it folds. That way, Republicans will see that it’s not just Obama who’s trying to get them to do something they oppose; it’s the public that’s demanding it.
The problem with the GOP's fall-back proposal is that the takeaway for the party's most conservative elements will be that Obama, not the public, has forced them to allow income taxes to rise on the wealthy. They will be maximally motivated to seek a rematch next year when the debt limit comes due. And, indeed, that’s step two of the strategy the GOP is considering, according to the Times.
Having said all that, there are two potential problems here, one or the other of which is likely to derail the whole diabolical plan. First, as the Times points out, even if the House GOP managed to pass such a bill and get Senate Republicans on board, it’s entirely possible that the Democratic Senate, recognizing that it backs Obama into a tough position, would kill it before it got to his desk. That wouldn’t be ideal, since it would let Boehner reclaim some of the political high ground he’s lost over the past year-and-a-half. (We passed the middle class tax cuts the president said he wanted!) But it would probably be necessary. More to the point, though, I have a hard time seeing how this passes the House in the first place. Even though the new idea would net the GOP about as much as it could possibly hope for in this situation, given the leverage Obama has, I suspect a number of House conservatives—probably too many—will consider allowing income taxes to rise on the top two percent the kind of abject capitulation they simply can’t abide. If that’s the case, Obama will have been saved yet again by the breathtaking irrationality of his opponents.
Update: We initially cut a few lines from this piece by mistake in the rush to get it up quickly. I've restored them and tweaked a few other sentences for clarity.
11 comments
A middling tax cut for the middle class and another enormous tax cut that only benefits the wealthy. That's the Republican's diabolical plan? Of course, Obama has only himself to blame for his "very difficult position" by not proposing the "Obama tax plan" and, instead, basing his strategy entirely on extension of a part of the Bush tax plan. Indeed, what this reveals is that the Obama strategy (and the Republicans response to it) has limited Obama and the Democrats to one option: over the cliff!
- rayward
December 14, 2012 at 10:48am
Once again, inadequate past and present BHO policies may be saved by the insane Repub policies. But inadequate policies will not help Progressives in the longer run (more than a few weeks or months)--- or end the Great Recession (or Lesser Depression, if you prefer) for years. Until Dems elect leaders who make the ideological arguments to advocate Progressive principals and Keynesian economic soolutions, policies will continue their rightward drift.
- drofnats1
December 14, 2012 at 10:49am
Nah. This only works if the Dems are a pack of dummies, unable to explain that the House bill actually further reduces taxes on the wealthiest and explodes the deficit. Cute, but I don't think this is going to work unless the Dems fall into a coma. All Obama needs is to go over the cliff and have a completely clean Senate bill restoring the Bush cuts for the "middle class." The longer the House delays passing the bill, the better. This would also unhook the spending discussion from the tax discussion, which would be all to the good. They are only connected by Republican anti-deficit rhetoric. In the real world, not much. With the tax sword hanging over the Republican heads, the debate then turns to how to re-structure spending to avoid the sequester, and here too the Dems have the upper hand if they craft a Senate bill, and adopt it, that protects popular entitlements while cutting mostly military spending with some other spending cuts accompanied by stimulus spending on badly needed infrastructure. The Republicans would have to put some competing proposal on the table, which they have been unwilling to do for reasons ably explained by Krugman today -- that is they can't because their rhetoric is a fraud. They will be terrified to tell the public what they actually propose to cut and will be squeezed between the sequester and the Senate bill. Couldn't be better if the Dems don't get all weak in the knees. If the economy starts to slow down, they can start making I told you so noises that we cannot afford to cut spending in a recession.
- roidubouloi
December 14, 2012 at 10:52am
The Dems are holding a grand-slam hand. They just have to play the cards correctly.
- roidubouloi
December 14, 2012 at 10:53am
roi. As I see it, the problem is, re overall strategy Dems HAVE been a pack of dummies. Case in point, this article should be titled fiscal cliff tactic-- NOT strategy. The Repub strategy is starve the beast, make strong ideological arguments that often hide tactical nonsense. That approach got Mittens 47-48% of the vote. Dem leaders concentate constantly on tactics for an issue at hand-- no one ever advocates/articulates an overarching strategy to counter Repub strategy. My assessment is BHO is unable to do so.. No Dem currently in a position of national prominence has ever done so (including Hillary-- if anything, worse than BHO in 2008).
- drofnats1
December 14, 2012 at 11:09am
dr, As to strategy, I completely agree with you. But, as you note, strategy is the wrong adjective for this situation, a tactical situation. I think the Dems have a chance of getting the tactics right this time. They are still in need of a strategy, and the place to go next is a combination of immigration reform, both because we need it and to keep the Rs on the defensive, and a clear policy as to entitlements. For the most part, the claim that entitlements need to be reformed is a myth. The next 20 years is principally a result of demographics and the public does not want benefits cut across the board. So, what is needed is 1) means-testing, 2) a broadening of the tax base to support entitlements, and 3) a vigorous program to establish protocols for what medical care will be paid for and how much will be paid. You put it on a sound long-term actuarial footing and make the case that any other modifications are simply across the board benefit cuts, breaking the promises made to a generation. You make the programs bullet-proof and completely detach the entitlement issue from the costs of operating government. THEN you make the case that we have to fund government operations and go for a more progressive tax structure. Let the Republicans propose spending cuts to operations, there aren't a lot to be had unless they are going to cut military spending, because non-military spending is already a shrinking and modest portion of the GDP pie. You lay on the table a proposal for a significantly more progressive structure that lifts the zero bracket while balancing the budget and just let the Republicans squirm. The Dems have been terrified into being unwilling to lay policy on the table. The key in my opinion is to divide and conquer. The so-called grand bargain is the worst bargain because it obscures the public view of what is actually going on. Will the Democrats adopt this strategy, or any strategy? Probably not.
- roidubouloi
December 14, 2012 at 12:04pm
Roi. Agreed, including "Will the Democrats adopt this strategy, or any strategy? Probably not." Assuming the quoted statement to be the case, when and how do Progressive Dems begin to rectify the problem of no strategy (other than hand-wringing)??? I am convinced that until each party suffers a massive defeat, it will not change. Neither party did in 2012 and the kabuki play of the insane versus the inadequate continues, with the country constantly moving further right aided by BHO and Senate Dems past (and I fear future) compromises with the insane. I'd love to be proven wrong in my constant Cassandra-like comments, but my best bet is that we get a BHO compromise on the faux fiscal cliff/debt limit extension that once again partially validates the Repub insanity AND produces economic disaster or continued non-recovery (which in itself is a disaster, producing a lost-generation of new and older workers).
- drofnats1
December 14, 2012 at 12:40pm
The Republican House is making a habit of passing idiotic spending bills that then go nowhere, like the Ryan Budget and now this one. They then accuse the President of making unacceptable demands -- like the one where the Bush Tax-Cuts MUST expire on those with income over $250K. Except while the Republicans wail about how "immoral" the budget deficit is, their idiotic spending bills simply make it worse. That doesn't stop them passing their bills, with a sense of smugness that they're "doing something" with their pointless posing. Oh, well, the Fiscal Cliff will eliminate the Bush Tax-Cuts. Then we'll all start arguing about what to do next. And everyone likes arguing about lowering taxes, after all.
- AllanL5
December 14, 2012 at 1:25pm
I don't know, dr. But I am still unwilling to go the route of political self-immolation.
- roidubouloi
December 14, 2012 at 2:12pm
AL5. I sure hope we go over the cliff/slope/or bump-- whatever it is is political, not a fiscal problem. And any compromise I've seen has worse consequences. Roi. Its now too late for Dem immolation (and possible rapid rebirth), so now we have continued Dem starvation or leech blood-letting (in Krugman metaphors) in which Dems all too often aid their tormentors. I really don't think either of our two parties will change until each in turn receives and recognizes a massive defeat-- which neither did/does in 2012. Until that happens, the best bet is the past predicts the future-- a continued rightward drift aided by BHO and Senate leaders, occasional verbiage to the contrary notwithstanding. I'd love to lose that bet. I think nothing will change for a Progressive better until an articulate Progressive spokesperson gains real political power to constantly make the coherent case that all but the poorest are undertaxed and that tax monies can be spent appropriately to rectify our decayed infrastructure (including secondary education where score worse than most any 1st world country). That appropriately spending tax-obtained money now can end the Great Recession/Lesser Depression within 12-18 months. That great savings are NOT to be had from cutting many entitlements, but are to be had from an efficient,universal, single payer health care system (3-5% of GNP-- that's REAL $). And all that is easily doable while reducing and stabilizing the debt with respect to GNP. That spokesperson is NOT BHO.. or Hillary--- unless either undergoes a miraculous policy and personality conversion.
- drofnats1
December 14, 2012 at 2:40pm
I think Allan is right, the bill has to go to reconciliation with the Senate, all of the tax cuts could be taken out by the Senate, that bill can pass the Senate again and then Obama and the Senate can ask the House to pass that bill. In fact, Reid can bottle that bill up in conference until the recess. So Reid can either play ping pong with the bill (revising it just enough that Republicans balk) or he can bottle it up. Christmas is in 11 days, 95% of Americans are thinking of the holidays (and Hannakuh is already here). If Boehner makes noises in a country that isn't listening, will it make a sound?
- blackton
December 14, 2012 at 2:52pm