PLANK DECEMBER 30, 2012
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Republicans have backed off their demand that a "fiscal cliff" deal include the "chaining" (read: cutting) of Social Security benefit increases. Logically speaking, that should mean that a deal to limit the Jan. 1 restoration of Clinton-era tax rates to income below $250,000 should be at hand. But now both sides are grappling over how much of the scheduled automatic budget cut ("the sequester") should take place. At least some Republicans have an interest in delaying a vote past Jan. 1 so they can say they voted for a tax cut, not a tax increase. Pretty much all Democrats have an interest in similarly delaying a vote so they can press Republicans for a deal more favorable to themselves--some stimulus spending, a raising of the deficit ceiling, and a few other items.
The smarter Republicans, including the Republican leaders, seem to grasp that leverage will shift to the Democrats at the stroke of midnight Tuesday. That's why they are in a panic. As usual, the party that's having a hard time grasping how much power it holds is the Democrats, specifically the White House. President Obama previously (and stupidly) suggested he might be willing to go up to a $400,000 threshold for higher tax rates. So if a deal is struck before midnight, it may well include that higher threshold.
But if a deal isn't struck before midnight, the $400,000 threshold should be removed from the table. I would like to hear Obama say "This offer expires Tuesday" before the witching hour is reached. For one thing, it might force a deal (though any such deal should, at the very least, put off the debt-limit fight, extend the payroll-tax cut, and extend various tax credits for lower-income people--all items that, to judge from news reports, are now off the table). And if a deal before Jan. 1 isn't possible--and it probably isn't--then Obama will be on record saying he never intended to retain flexibility on this campaign promise of eight years' standing into 2013. Perhaps the president is already thinking this way. (If no deal is reached, Senate Majority Leader Harry Reid will push through a bill Monday with the $250,000 threshold, then dare the House not to pass it.) But it would be good to hear him say it out loud: "Read my lips: $400,000 now. $250,000 later. And be grateful I'm not saying $100,000."
Update, Dec. 31: the Democrats have now raised the threshold to $450,000 a year. I repeat: This offer should expire on Jan. 1, and Obama should say so.
4 comments
As Henry Higgens said in "My Fair Lady" -- "Damn, damn, damn!" The 250K WAS a 'compromise' position from the 100K. He's got to quit offering worse and worse "compromise" positions when he's already offered them and they've been rejected -- especially when he has all the cards and has already offered all he (and the country) can afford to offer. Obviously, from past experience, this current crop of Republicans in Congress won't fold until after the 11th hour, no matter WHAT you offer them. So you might as well make the best offer you can, then stand on that offer until the 11th hour. They still might not fold, but Obama still holds the better position.
- AllanL5
December 30, 2012 at 6:12pm
I'll repost the comment I left on the current TRB column on Ben Bernanke's monetary activism: The output gap is still rather large. The economy is still zero-lower-bound-constrained. Just imagine what a second stimulus composed of projects like the first would do. Measures like direct aid to the states and construction and infrastructure. I'd prefer larger programs in the former to continued tax cuts, but I also recognize that a rise in taxes would be bad, so that continued tax cut is something I would bargain over with Republicans. Get Republicans to agree to vote present on it and let them court the apocalyptic as they get out of the way and allow Obama to be painted a big spender. The Fed has promised to do all things needful to get unemployment below 6.5% as long as inflation doesn't climb above 2.5%. What's important here is that they won't act to impede the continued recovery but will rather support it. This is all you need. The stage is set for a bet and a battle between Obama and the Republicans, and an actual understanding of economics says that we would go from creating jobs at a rate just keeping up with population growth (~120-150,000) to more Clintonian levels of growth. That would redound to Democrats' favour in 2014, regardless of however much baying people do about the deficit (see, for example, 1981-1997), because when people start to make more money and see the unemployment crisis coming to an end, they'll reward the party that did something about it. And Republicans will have made sure their hands didn't touch it. If this is something that we can get for the price of continuing the upper income (but not capital gains or dividends or estate) tax rates for two years, I'll take it. If a continuation of all the cuts is necessary to secure cooperation on this measure, then it's necessary to convene all Democratic Senators to get them ready for the nuclear option (an end to the filibuster as we know it) to raise the bargaining stakes and exact more leverage. At this point, it's also helpful to get a determination from Hillary over whether she is definitely running in 2016, so as to ensure that the good economy of the tail end of Obama's presidency is handed over to a Democrat with good prospects of keeping the Senate majority in the Democratic column, so as to keep appointments liberal for the foreseeable future. Hillary can usher in a House Democratic majority in 2016, by which point what we're talking about is getting the liberal platform through that Obama intended to before sidetracked by the Great Recession. It's possible that a Biden can do it too if Hillary doesn't want to run, but knowing who is inheriting the wind changes the calculations for action somewhat.
- chaitless
December 30, 2012 at 6:58pm
Also a better economy would by definition start shrinking the deficit. A recession or depression, tax receipts go down, deficits go up. The whole deficit thing is a red herring in the first place. Anyway, people are thinking about their election chances in 2014 and 2016 instead of thinking about, you know, helping the country and that's infuriating.
- Sophia
December 30, 2012 at 8:15pm
Obama's going to $450,000.00 reminds me of the NFL Lions's recent Thanksgiving game where a player on the opposing team ran for a touchdown after actually already being tackled. But since the Lions coach threw a challenge flag on a play which was automatically reviewable, it prevented review of the touchdown (under a stupid rule) and affirmed 6 points for the opposing team. The Lions lost by three points in overtime. That's how highly I regard going to $450,000.00.
- Nusholtz
December 31, 2012 at 11:41am