PLANK DECEMBER 18, 2012
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The most prominent "fiscal cliff" development on Tuesday was House Speaker John Boehner’s decision to introduce what he calls “Plan B.” The most interesting development was the liberal reaction to President Obama’s negotiating posture. Both deserve some attention, because both are going to shape the final deal.
First, Boehner’s Plan B: As you may recall, Boehner and President Obama had spent the previous few days exchanging offers on how to avoid the “fiscal cliff”—the set of automatic tax increases and spending cuts set to take effect on January 1. On Tuesday, Boehner announced that Obama’s latest offer was still more than he, or his fellow House Republicans, could contemplate. Rather than wait for negotiations to produce a deal, Boehner said, he would put forward a bill that would extend the Bush tax cuts affecting incomes below $1 million. That way, he said, the middle class would know it’s getting a tax break, even as he and the president continued talking about how to reach a more wide-ranging deal.
Congressional Democrats say they would vote against such a proposal and President Obama has made clear that he would veto it. That response is altogether proper. Allowing tax rates on incomes above $1 million to rise is the same thing as allowing tax breaks on incomes below $1 million to remain where they are now, at levels set by the Bush tax cuts. Such a change would lock in place large tax breaks for the wealthy; remember, they would still get tax relief on the first million dollars of their incomes. And it would generate somewhere between $250 and $450 billion in revenue, give or take, depending on the structure. That’s a lot less than the $1.2 trillion Obama is now seeking.
Of course, Plan B may never get out of the House. Given the strong Democratic opposition, Boehner presumably needs most of his caucus to vote for the bill. But plenty of Republicans still refuse to vote for any bill that results in higher taxes on the wealthy, either because they oppose the idea on principle, fear a primary challenge from the right, or some combination of the two. Boehner himself may not know how much support he has.
Now, onto Obama’s latest proposal—and the reaction it provoked on the left.
Until Monday, Obama had held a pretty firm position in negotiations: In addition to requesting the revenue, which he originally pegged at $1.6 trillion; and while he was willing to cut spending, he wanted to spare the beneficiaries of programs. But on Monday, “knowledgeable sources” began telling reporters that Obama was making some concessions—not only reducing his revenue request, to the $1.2 trillion, but condoning larger spending cuts, including a change in the benefit formula for Social Security. That last part made liberals absolutely furious: Moveon.org sent an alert to members, calling the idea "a betrayal." On Capitol Hill, Senator Dick Durbin said, in an interview with the Washington Post's Greg Sargent, that he was strongly opposed to adjusting Social Security benefits—although he stopped just short of ruling it out.
Would a shift in the Social Security formula really be so objectionable on the merits? Opponents say that, whatever the technical justifications, such a shift would reduce benefits for seniors. These critics know that the administration has promised to protect the poorest, weakest, and oldest seniors by adjusting the formula; the problem, the critics say, is that the adjustments won’t fully offset the benefit cut. In response, proponents of the idea say…well, they say pretty much the same thing. They acknowledge that it’s benefit cut, even with protections for the most vulnerable seniors. They say it’s not something they particular want to do. Rather, they say it’s something they have to do—or, at the very least, something that is worth doing—in order to get a better deal.
Among those who seem to hold the latter view, notably, is House Minority Leader Nancy Pelosi. During an interview with MSNBC's Andrea Mitchell on Tuesday, Pelosi reiterated her strong objection to raising the Medicare age, another idea that Republicans have proposed. When Mitchell asked Pelosi whether the Social Security adjustment should also be a deal-breaker, Pelosi changed the subject. Keep in mind that, given the position of extremist Republicans, Boehner probably can't get a bill out of the House without substantial support from Democrats. That means he probably can't get a bill out of the House without support from Pelosi.
One reason Pelosi and other Democratic insiders are holding fire may be an appreciation for some elements of Obama's proposal that have not received much attention, even though they are important. Among those are the "refundables," which sounds like the name of a lounge band from the 1970s but is actually a series of initiatives that do a lot to help low- and middle-income Americans. On January 1, if nothing happens, three of these measures will expire: the Earned Income Tax Credit, which provides extra cash to working families; an expansion of the Child Tax Credit, which subsidizes families with kids; and the American Opportunity Tax Credit, which assists people paying for college tuition. Obama’s proposal calls for renewing all of them permanently. Together, these measures would represent about $250 billion in total expenditures over ten years.
That’s a big deal, and not just in sheer dollars. The Child Tax Credit is, as Elaine Maag of the Tax Policy Center put it, "a key piece of the safety net for low- and moderate-income families." The White House figures that, on average, these credits expiring credits are worth about $1000 to about 25 million families—families that are, by and large, precisely the people whom government should be helping. But the provisions have draw strong criticism from conservatives because, supposedly, they are making Americans too dependent on government. (The evidence suggests otherwise. As a briefing from the Center on Budget and Policy Priorities correctly notes, "Studies have found that the EITC encourages work, reduces poverty, helps families meet basic needs, and improves children’s achievement in school and likely increases their earnings as adults.")
Renewing the refundables would certainly strengthen the case for passing something like Obama's proposal. It would not necessarily clinch it. The cut to Social Security really would hurt a lot of people; that’s why liberals like Paul Krugman say they are “agonizing” over whether it’s worth the potential trade-offs. At Slate, Matthew Yglesias has pointed out, correctly, that raising revenue may not be as valuable as it seems, given that efforts to raise revenue in the 1990s merely gave George W. Bush a chance to give that money to the wealthy, at tax cuts. Here at TNR, my colleague Noam Scheiber has made an extremely compelling case that forcing Republicans to capitulate—or to suffer the political consequences of going over the fiscal cliff—is essential to break the will of the party’s extremist wing.
That last point looms larger in my mind the more I think about it. As recently as a few days ago, the administration was refusing to negotiate with Republicans about the debt ceiling. If Boehner or one of his lieutenants called about the debt ceiling, administration sources were saying, Obama wouldn’t pick up the phone. Then Boehner made his offer merely to push back the debt ceiling by one year, so he could maintain true to the Republican Party’s newly established position—that the government could borrow more money only to the extent that it cut spending. The administration, along with plenty of its allies, is taking this idea seriously. It's hard to understand.
This much is clear: A deal with further concessions would be ever harder to stomach. That alone is good reason for liberals to keep screaming, even if parts of the proposal deserve cheering.
9 comments
Forget it. Betray the people who stood in line to vote, who scrounged pennies from scant budgets to contribute to the Democratic cause, who spent time on phones calling potential voters, and this Democrat is done. Period. I suspect there are millions and millions of people out here just like me. This country has gone down the rabbit hole in recent years. We are not an official oligarchy YET but the time to stand up for democracy is right now. The time to stand up for economic justice is right now. Harming poor, working class and actual middle class people and families in order to give the rich even more, at a time when they're obscenely rich and powerful already, is flat out immoral.
- Sophia
December 19, 2012 at 1:30am
Here's the other side of this: if the GOP insists on getting rid of the Earned Income Tax Credit, blocks the expansion of the Child Tax Credit and the American Opportunity Tax Credit, it will alienate young families and working and middle class people and students all over America. In exchange for all this damage, they will reward the rich for being rich. The will keep their low tax rates, get their huge deductions for doing zip, or even worse gutting companies and stealing the pension money, outsourcing American jobs and clinging to their cash - the exact opposite of the job creation they claim to be doing with their low tax rates. That would indeed confirm suspicions that the GOP is a party only interested in a tiny minority of Americans. That should spell their doom as a party. This the precisely the time when the Democrats need to stand tough on principle in order to secure a more progressive future. The Right has been getting more and more and more extreme since Reagan was elected. Enough is really enough. Stand up now or it will be too late.
- Sophia
December 19, 2012 at 2:26am
Instead of cutting spending can't we just close spending loopholes? I have head that you can close loopholes without even identifying them. When the loopholes find out they are getting closed, they move to a more favorable climate.
- Nusholtz
December 19, 2012 at 6:21am
Social security was pretty much pay as you go until the whopping increase in the payroll tax adopted during the Reagan administration (with the cooperation of Democrats). Since then, payroll taxes collected have far exceeded benefits paid, with the excess "loaned" to the federal government to pay for such things as income tax cuts for the wealthy, wars in the middle east, etc. Not surprisingly, the amount "loaned" soared after Bush became president (from less than a trillion to today's balance of about $2.7 trillion). And not coincidentally, the combination of proposed tax increases and spending cuts about equals the total amount borrowed from the social security trust fund. I've used the amount borrowed from the trust fund as a barometer to judge proposed "cuts" in the deficit, accomplished in part with spending cuts (the part borne in large part by the most vulnerable among us) and income tax increases (the part borne in large part by the most affluent among us). Of course, it's ludicrous to say we have "cut" the deficit when the combination of tax increases and spending cuts won't even repay the debt to the trust fund. Senator McConnell has said many times that, if it were up to him, we would not repay that debt with income tax receipts (i.e., it would not be borne by the most affluent among us). And guess what? McConnell is getting his way. Not explicitly, but implicitly. After all, if Democrats can't get more concessions on income tax increases on the wealthy with the leverage they have today, how can one expect them to get them anytime in the near future when they have little or no leverage. Sure, the government can simply refinance the debt owing to the trust fund by further borrowing from Americans and foreigners, and using the amounts borrowed to repay the earlier debt to the trust fund. But all that does is disguise what actually happened as the result of the 1980s payroll tax increase: a dramatic shift in the overall tax burden to working Americans. Cohn objects, rightfully in my view, that the part of the proposed compromise on the deficit that will be borne by the most vulnerable among us, almost half in Obama’s proposal and more than half in Boehner’s proposal, is too much to accept. What that leaves out, however, is the burden on ordinary working Americans, for it was ordinary working Americans who bore the whopping payroll tax increase adopted in the 1980s. And don’t forget the political consequence: it turned many ordinary working Americans into tax protesters and Republicans. If Obama and the Republicans reach a compromise that resembles what has been proposed, refinancing the debt to the trust fund will be our only option. And if more income tax increases on the wealthy to repay that debt are unlikely, where will the additional government revenues come from to pay that debt? That's right, another whopping increase in the regressive payroll tax to "save" social security and dramatic cuts to entitlements to “avoid bankruptcy”. McConnell will have gotten his way after all. And Democrats will once again pay a huge political cost.
- rayward
December 19, 2012 at 8:57am
"Plan B"? Shoot, all we have to do is wait like, two weeks, and we get all the taxes anyone could ever want. THEN we can start talking about maybe reducing some of them on incomes below 100K, 250K, whatever. I'm astonished that Boehner keeps offering these lame "compromises" when he's got nothing to stand on. And I was also astonished that Obama would offer to move the line to $400K -- I thought moving it from 100K to 250K was bad enough. That's the big problem with Boehner's liar's poker approach. He keeps sitting there like he has an option of keeping the Bush tax-cuts in their entirety. In reality, he simply does not have that option, unless Obama gives it to him.
- AllanL5
December 19, 2012 at 11:58am
As for tax rates: relatively lowly workers like me paid well over 25% year in and year out, whereas people like Mitt paid way less and the vast majority of his income, which wasn't derived from actual work, wasn't subject to the payroll tax at all. Now, seniors and disabled people get to scrabble around trying to find even cheaper beans and rice? So the Mitts of the world can do what? Buy some extra diamonds? Cost of living means: cost of shelter, food, medical care, the ability to not freeze in winter or die of heat stroke in summer. It doesn't mean the ability to buy car elevators or extra refrigerators. Now: maybe means testing SS benefits makes sense. People who are already making plenty don't need as much in the way of SS. People who really depend on it need more, not less.
- Sophia
December 19, 2012 at 1:21pm
Ditto Allan. I'm quite content with the progress so far. The COLA adjustment is just common sense, and can be easily managed to shield the most vulnerable. We're going to get means testing, either explicit or otherwise, and that goes for all the entitlements and hopefully other big write-offs like mortgage interest deductions at the high end and on second homes, carried interest, a big haul of distorting and even counter-productive subsidies, etc. Then, with the books at least arguably on the way to something like balance, we can challenge the Repubs to a serious reduction in the size and cost of government. I'd start with declaring victory in the Global War on Drugs and discharging about half of our incarcerated fellow citizens.
- Robert Powell
December 19, 2012 at 2:58pm
"As for tax rates: relatively lowly workers like me paid well over 25% year in and year out, whereas people like Mitt paid way less and the vast majority of his income, which wasn't derived from actual work, wasn't subject to the payroll tax at all." Yes but you're not a JOB CREATOR, silly. There you go. Hope that helped. :)
- Tristan
December 19, 2012 at 3:10pm
When you use martial rhetoric in the context of financial policy discussions, you change the stakes at issue. If you make survival an issue, it will become the issue. Are we talking life and death? Then it will be. Are you prepared for it? Only because you think you are on the winning side. What if not?
- dmking316b
December 19, 2012 at 3:13pm