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Go Home Kill This Deal

PLANK DECEMBER 31, 2012

Kill This Deal

BY TIMOTHY NOAH

"This miry slough is such a place as cannot be mended; it is the descent whither the scum and filth that attends conviction for sin doth continually run, and therefore it is called the Slough of Despond; for still, as the sinner is awakened about his lost condition, there ariseth in his soul many fears, and doubts, and discouraging apprehensions, which all of them get together, and settle in this place. And this is the reason of the badness of this ground."

--John Bunyan, The Pilgrim's Progress.

"Unless the two sides can reach agreement, historic tax hikes are set to hit virtually every American on Jan. 1, potentially driving the nation back into recession. An impasse would also throw the coming tax filing season into chaos, as nearly 30 million unsuspecting taxpayers would be required to pay the costly alternative minimum tax for the first time."

--Lori Montgomery and Paul Kane, "Biden, McConnell Continue 'Cliff' Talks As Clock Winds Down."

Dear House and Senate Democrats,

Your president has sold you out. A deal will likely be announced today canceling the scheduled income-tax increase on all family income below $450,000, instead of the promised $250,000 threshold, which was already too high. It will also extend unemployment benefits and what my colleague Jon Cohn calls the "refundables," i.e., tax credits for lower- and middle-income people, and it will cancel Milkageddon, which is all good. But it isn't clear what it will do about the automatic cuts in the "sequester," and the deal doesn't appear to include extension of the payroll tax cut, which even Bill Kristol wants to extend. Also, the Democrats mostly caved on letting the inheritance tax rise. Oh, and the deal gives Republicans carte blanche to take America hostage all over again in a month or two over raising the debt limit. 

Please vote against this bad deal so we can greet the new year on the far side of the fiscal cliff, which, notwithstanding the hysteria that the Washington Post is doing its best to spread (with an assist from the Senate chaplain!), is not the Slough of Despond. It is the Promised Land, a place where Democrats will have considerably more leverage than they have today to compel a quick deal far more to their liking.

The White House means well, but it has bargained incompetently. As Jonathan Chait points out, any worry on the White House's part that it will be undercut by Senate Democrats too eager to make an even-worse deal is matched by a well-founded fear on the Senate Democrats' part that the White House won't hang tough. And anyway, the president has veto power, for crying out loud! Ezra Klein reports that the Democrats think they can make a deal now, force another tax increase later, and still get Republicans to back down on the debt ceiling. This is delusional. Any Republican who at this point believes Democrats will drive a hard bargain must be judged a fool.

You can change this calculus by demonstrating the fortitude that has abandoned President Barack Obama and Vice President Joe Biden. Do not "come together." Stay apart. Until it's 2013.

Sincerely,

Timothy Noah

PS Tell your Republican friends that any vote for a deal before Jan. 1 is most definitely a tax increase, while any vote for a deal after is most definitely a tax cut. You might remind them that the Club For Growth thinks so, too.

Update, 1:15: Sam Stein and Ryan Grim of the Huffington Post have a more thorough summary of the deal here.

Update, 5:20 p.m.: Apparently the deal is, revenue-wise, a little better than I previously thought. Because the Clinton-era personal exemption phaseout and limitation on itemized deductions would still kick in at $250,000, the $450,000 threshold would, as my colleague Noam Scheiber points out, still capture most of the revenue that a $250,000 threshold would. (Without this feature, the $450,000 threshold would capture less than half as much.)

Nevertheless, this is still a crappy deal, and Democrats should still reject it--or be quietly pleased if House Republicans reject it (as they're threatening to do).

Somebody in the Obama administration persuaded Paul Krugman that if Obama had waited past Jan. 1 he might have lost his chance to extend unemployment benefits and the "refundables." I can well imagine that an administration aide would say this, but I don't believe there was ever serious risk of this happening. Remember, after Jan. 1, Obama was going to have more leverage, not less. And it would have been easy for Obama to use GOP recalcitrance on these issues to make Republicans look like they care about the affluent at the expense of the poor and middle class--as Obama did, for instance, last year when Republicans opposed extending the payroll tax cut. It's worth repeating that the payroll tax cut, deplorably, is not extended in this deal.

Also, at this writing it looks as though the deal won't do anything to prevent sequestration. Instead, it will likely delay it. So we're going to have massive automatic spending cuts after all. The fact that these cuts would fall heavily on defense spending leaves Democrats decent leverage to work out a deal to reduce other discretionary-spending cuts. But letting the cuts fall on defense and letting taxes rise on all incomes would have given Democrats a lot more leverage. And instead of one choke point (fiscal cliff deadline), we now have three (fiscal cliff deadline plus sequestration cancellation plus debt ceiling increase).

Also, it turns out the House isn't going to vote on the deal until Jan. 1 at the earliest. So Obama gave up a lot of ground and House Republicans still didn't have to vote on this thing until they could call it a tax cut.

Citizens For Tax Justice is so appalled that it's saying no deal would be better than this deal: "This would merely allow the tax rules to revert to those in place at the end of the Clinton administration. Given the economic prosperity experienced at the of the Clinton years, it’s difficult to believe that this more fiscally responsible approach will have a significant adverse effect on our economy." CTJ is bluffing, I think. Remember, the Congressional Budget Office says leaving everything in place will send the economy back into recession. On the other hand, if the fiscal cliff has already eroded consumer confidence and stifled investment, we may get that recession anyway. The sequester will still need to be stopped, but--remember--the deal doesn't resolve that problem. So the case for inaction on taxes, while not great, isn't as awful as it might seem.

SHARE YOUR THOUGHTS

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40 comments

Goddamit, let's go over the effin' cliff! If the deal, as described by Mr. Noah above, is indeed in works, I sure feel like I've been played for a sucker by BHO & Co.

- Haole45

December 31, 2012 at 12:49pm

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Me too. Arrrgghhhhhhhhhhhh.

- Sophia

December 31, 2012 at 12:52pm

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"Oh, and the deal gives Republicans carte blanche to take America hostage all over again in a month or two over raising the debt limit." Evidence please.

- icarus-r

December 31, 2012 at 1:06pm

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Not sure this is accurate. From the Washington Post a few minutes ago: "As President Obama prepared to deliver remarks about the “fiscal cliff” at 1:30 p.m. at the White House, negotiators for the administration and McConnell (R-Ky.) appeared to have nailed down many of the most critical tax issues, including a plan to let taxes rise on income over $450,000 a year for couples and $400,000 a year for individuals, according to people in both parties familiar with the talks. Households earning less than that would largely escape higher income tax bills, though couples earning more than $250,000 a year and individuals earning more than $200,000 would lose part of the value of their exemptions and itemized deductions, under the terms of the emerging agreement. Low-income households would also benefit from an extension of credits for college tuition and the working poor first enacted as part of Obama’s stimulus package in 2009. And businesses would see a variety of popular tax breaks extended, including a credit for research and development. The tax on inherited estates would rise from 35 percent to 40 percent, though Democrats agreed to keep the current exemption for estates worth up to $5 million in place. The two sides also appeared to have reached consensus on unemployment benefits, with Republicans conceding to Democratic demands to keep benefits flowing to the long-term unemployed for another year. The cost would not be offset with other spending cuts." We'll see shortly, but it appears that unemployment benefits will continue. The biggest problem would be the payroll tax holiday. If they extended that as well I think this is not so bad. And it would have the effect of forcing Republicans to vote for a tax hike. Not too shabby.

- timteeter

December 31, 2012 at 1:19pm

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http://money.cnn.com/2012/12/31/news/economy/debt-ceiling-fiscal-cliff/

- Timothy Noah

December 31, 2012 at 1:22pm

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I don't see any inconsistency between what I wrote and what the Post has.

- Timothy Noah

December 31, 2012 at 1:23pm

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Double checked: you're right. But I still don't think this is so bad, depending on the payroll tax cut.

- timteeter

December 31, 2012 at 1:25pm

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another advantage of taking this to the precipice during the holidays is that the offices all Congressmen and women are closed and they need not hear the voice of their constituents I sent emails with links to Noah's piece to both my Senators (Wyden and Merkley) and tried to follow up with a phone call only to be met with the recorded message that offices—both local and DC—were closed for the holidays.

- teoc

December 31, 2012 at 1:26pm

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From the NYTimes: "Under the blueprint, income taxes would rise on incomes over $400,000 for singles and $450,000 for couples, but the affluent would take another hit. Two provisions phasing out the personal exemption and other tax deductions would be reinstated after being eliminated by the Bush tax cuts of 2001. The so-called PEPS and Pease provisions would begin kicking in on incomes over $200,000 for singles and $250,000 for couples. The tax rate on capital gains and dividends would also rise, to 20 percent from 15 percent, but that would kick in with the higher income tax rates, at incomes of $400,000 for singles and $450,000 for couples." So capital gains goes up too. Looking marginally better.

- timteeter

December 31, 2012 at 1:30pm

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the dow spiked at 12:30pm EST and again at a little past 1pm loose lips move the market

- teoc

December 31, 2012 at 1:31pm

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Tim: The article does not appear to suggest that the Administration is willing to accept a deal without the debt ceiling. It refers to this: "The deadline sets the tables for another fight on Capitol Hill, where some Republican lawmakers view the debt limit as leverage in negotiations with President Obama over spending cuts and reforms to Medicare and Social Security." Given that Republicans have been astonishingly open about their disdain for the President and about their strategy to strangle the US economy by forcing a show-down on the debt ceiling in two months' time, I am not at all sure how you get to the point that the President, Biden, and Senate leaders would agree to a deal that would leave the debt ceiling unresolved. If anything, the fact of the debt ceiling fight coming is good reason to conclude a deal now, rather than wait for after January. This is what will happen if there is no deal. Obama will present his tax plan in January and it will go exactly nowhere, like his Jobs plan. The Republicans in the House will hold hearings on Solyndra and Fast and Furious, while the Senate Republicans filibuster Hagel or Flournoy or Rumsfeld, until the debt ceiling arrives. Then they will have a collective snit fit and threaten to tank the economy, unless the poor are shafted and the unemployed permanently cut off. The people, meanwhile, will remember vaguely that the Republicans had been intransigent, except that the Media will generally play the "pox on both their houses" routine and by the time they are done, and taxes begin to bite, Obama's popularity will be in the teens. Obama wants a deal now not because he is weak, but because he recognises that the Republicans are happy destroying him, even if it means fucking the US economy. It's as if we have all forgotten the script over the past four years.

- icarus-r

December 31, 2012 at 1:41pm

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I'm reading that the Bush tax cuts for $400,000 and under would be *permanent* under the deal. Ugh.

- Lymon1

December 31, 2012 at 1:54pm

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There is no such thing as a "permanent" tax rate or tax cut. That's just Washington-speak for "no sunset provision."

- timteeter

December 31, 2012 at 2:01pm

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Ezra Klein reports: http://www.washingtonpost.com/blogs/wonkblog/wp/2012/12/31/why-the-white-house-thinks-its-winning-the-fiscal-cliff/?hpid=z1

- timteeter

December 31, 2012 at 2:08pm

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timeleeter - After reading Bob Woodward's "The Agenda" and seeing how herculean an effort was required to raise taxes and the political consequences of same, and seeing how the Democrats can't raise taxes on the $250-400K even after winning a decisive election on this very issue, I'm willing to lay money on "permanent" - at least as far as my lifetime goes.

- Lymon1

December 31, 2012 at 2:18pm

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Greg Sargent: http://www.washingtonpost.com/blogs/plum-line/wp/2012/12/31/the-case-for-the-dems-negotiating-strategy/?hpid=z3

- timteeter

December 31, 2012 at 2:21pm

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Told you so. Only the insanity of the Repubs might save the Dems. Wre'll soon hear from BHO and Senate leaders how pleased they are that the "Repubs are a party they can do business with" . Heard THAT one before??? The Sudetenland deal wasn't a bad deal either, as viewed by most at the time... except by those who were correct about the true nature of the opposition and what they really wanted. And what the consequences really were. Repubs aren't facists, but they are an intractable opposition whose goal is to bring down BHO... and this deal only confirms that their approach works. You all got what you voted for. So at the very least, don't be surprised.

- drofnats1

December 31, 2012 at 3:13pm

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"Only the insanity of the Repubs might save the Dems." Have you ever wondered that the "Dems"and "BHO" have at least the same access to information - "the insanity of the Repubs" - as you do? And that perhaps, they take that into account, just as you do? Just saying. "The Sudetenland deal wasn't a bad deal either, as viewed by most at the time." On the positive side, all this reference to Neville C. and Sudetenland is so fucking out to lunch that you pretty much undermine any sense you might otherwise make. You really are insane.

- icarus-r

December 31, 2012 at 3:38pm

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It sickens me that so many Democrats are so out for revenge, to get their pound of flesh from Republicans, that they would be willing to sell out the poorest and most vulnerable segment of our society. 2 million people would be effectively ruined if UI runs out, and millions of working class families will lose on average about $100 a week from the expiration of the child credit, eitc, and tuition credit. Where is the evidence that Obama can pass any of these in the next Congress? Sure he can get the tax rates back to what they are now but that is about it. For moderately rich people like Tim Noah he can stomp on the poor so that a subset of people incomes from 250 to 450 pay a moderately larger income tax. About the only thing I would object to is that these be made permanent, but I doubt even that could pass the full Senate and would therefore need to go through reconciliation and have a sunset provision. When the unemployment rate is down and it sunsets later on we can revisit this.

- blackton

December 31, 2012 at 3:42pm

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Not at all blackton. We just understand that Obama has taken far less than he could get on the other side of the so-called fiscal cliff when the Republicans would have to vote against a tax cut for the middle class in order to stave off UI relief, etc. You either know how to negotiate or you don't. If you leave a lot on the table, and set yourself up for more blackmail, as Obama appears to be doing by not preventing the next debt-ceiling hostage-taking, you are a lousy negotiator. Obama is a lousy negotiator. No spine. All you need to know is clear in the faces of Biden and McConnell.

- roidubouloi

December 31, 2012 at 4:13pm

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" as Obama appears to be doing by not preventing the next debt-ceiling hostage-taking" I still don't see where this is coming from.

- icarus-r

December 31, 2012 at 4:44pm

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blackton - as someone who ENDORSED a deal I was/am ambivalent about because of such concerns, your sense of outrage is once again way off the mark. By your reasoning, the Dems should have accepted a deal that put amount at ANY level whether it was $400,000 or $1,000,000 - the Unemployment Insurance gun to the head would still be there and you could repeat your moralistic "moderately rich people selling out the unemployed" argument. There's a saying in the law that "tough cases make bad law" - judges create terrible precedents for the future by being understandably sympathetic to the people before them. The "cliff" overall is pretty damn progressive - much more than Simpson-Bowles is going to be, but that pain will be slow and more hidden than unemployment benefits. What is going to help the poor in this case is muddied.

- Lymon1

December 31, 2012 at 4:50pm

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PS - happy new year (to blackton and everyone else at TNR!)

- Lymon1

December 31, 2012 at 4:52pm

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Lymon - agree. And Happy New Year to y'all as well.

- icarus-r

December 31, 2012 at 5:00pm

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We are not our for revenge. But the ship of state is listing far to the right and is in danger of sinking. We seek corrective action and the implementation of the modestly progressive platform for which the majority of Americans voted and which most Americans support. Alas, that small bit is too much for the GOP which as Krugman points out is apparently, underneath it all, trying to gut SS and Medicare, public education, any help for poor people and workers or the disabled or, in general, people who aren't rich and/or corporations. I hadn't realized how extreme they really are. Scary.

- Sophia

December 31, 2012 at 5:03pm

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This is why I am not too concerned about Obama's alleged lack of negotiating skills: "As McCain sees it, President Barack Obama’s latest speech offended Republicans by suggesting that Congress moves slowly ..." McCain 2012, meet Gingrich 1995. These heedless foofs are toast politically.

- icarus-r

December 31, 2012 at 5:14pm

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The GOP will not necessarily control the House for ever. Indeed, many people were talking about the gradual coming-apart of the Republican Party in its present form only a couple of weeks ago. Now they are Godzilla or what?

- ironyroad

December 31, 2012 at 6:18pm

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I've now updated this item to 5:20 p.m. New Year's Eve. Scroll to bottom.

- Timothy Noah

December 31, 2012 at 6:26pm

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Well, icarus, I have yet to see any report that Obama has required as part of the deal that the debt ceiling be lifted sufficiently to make it to the next budget cycle, which is when and where the matter of spending is properly fought out. Ergo, he has exhausted his main leverage, taxes, and bought only a few weeks until the Republicans take us hostage again. That sucks. That's not strategy. It is turning tail and running. Unless, that is, Obama actually shares a good part of the Republican agenda and is using them to make it appear that he is being forced into doing what he prefers to do anyway. Possible.

- roidubouloi

December 31, 2012 at 8:01pm

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Take another look at that picture of Biden and McConnell. Biden knows they cleaned his clock, because he had no choice given his marching orders from Obama. The longer they put off confronting Republican bullies, the worse it is going to be. It is in that sense that drofnats analogy to Münich is apt, although we all do understand that the Republicans are not going to invade Poland. It is a question of what happens when you appease thugs.

- roidubouloi

December 31, 2012 at 8:04pm

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Or is that Reid? All these blood-drained, old, white men look alike to me.

- roidubouloi

December 31, 2012 at 8:13pm

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Lymon: The "cliff" overall is pretty damn progressive - much more than Simpson-Bowles is going to be, but that pain will be slow and more hidden than unemployment benefits. 47% of Americans don't pay any income tax and even after the cliff is over with no future cuts won't be paying much. However the ending of the refundables will represent a huge cut on the order of $100 a week for a middle class family. How the hell is that progressive? This is all just an extension, it isn't permanent. Frankly until unemployment is down below 7% outside of tax reform I would prefer there be no tax hikes on anyone and in exchange Democrats could get a deal on the debt, unemployment, eitc, child tax credit, and probably a stimulus and payroll tax cut continuation and putting off the sequester all so Republicans can say they did not break their pledge to Norquist. As to the deficit, after unemployment is down below 7% at least and with interest rates at nothing let it be. and happy New year y'all too.

- blackton

December 31, 2012 at 8:21pm

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roi, that is Reid at a clean air convention.

- blackton

December 31, 2012 at 8:41pm

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Good posts, Blackton. Happy new year to most of you.

- arnon1

December 31, 2012 at 9:37pm

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blackton - it's progressive in the context I gave. I'd just assume push back deficit reduction until after the recession too, but perhaps the only bipartisan agreement on the budget is that deficit reduction needs to be addressed with the new congress. The Bush tax cuts are regressive - if you reverse them then you get a lot more revenue from the top 2-3%. Someone at TNR (I think J. Cohn but not positive) recently did a whole piece on why it is so wrong to not hike taxes on the "pretty gosh darn well off, even under $250,000/year, let alone $250,000 - $450,000. Also, I submit it is more "progressive" to reduce the deficit via military spending cuts than entitlement cuts, and I suspect that going forward you'll see that the "cliff" would have a better ratio in that regard than what we're going to wind up with.

- Lymon1

January 1, 2013 at 11:36am

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I am a libertarian-leaning, conservative person that has earnings that place me in the top 1%. I rarely agree with Noah, but, as to this deal, I do. I say go off the cliff, and then the house should pass legislation that cuts what will have then become higher rates, and that does not extend those rates to 39.6% for top earners. The house can then negotiate from a position of strength, not weakness. As for Obama having caved, BS. He can only get his agenda through with the help of at least a sizable number of House Republicans. He can say all he wants that he will not negotiate over this or that, but, he has no choice.

- horsefly

January 1, 2013 at 2:55pm

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But the tax cuts were expiring by themselves, requiring nothing from Obama.

- roidubouloi

January 1, 2013 at 9:14pm

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Here is how thoroughly lousy this deal is: http://www.nytimes.com/2013/01/02/us/politics/a-new-breed-of-republicans... Obama didn't just cave, he has enshrined most of the Bush tax cuts into permanent law permanently crippling the government.

- roidubouloi

January 1, 2013 at 11:01pm

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Now they are Democratic tax cuts. Obama is a bum.

- roidubouloi

January 1, 2013 at 11:02pm

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I completely disagree that $450,000 is to high. I live in Nebraska and with salary plus income from real estate investments I make more than $250,000. Family of five, 2800 sq ft house, 1 car payment, soccer team, speech team, marching band, food (fresh fruit and vegetables are expensive!), voice lessons, piano lessons, medical expenses etc. My shrink actually took it as a possible sign of the apocalypse because I supported Rep. Boehner's Plan B! Peace and blessings to all!

- DDS112097

January 2, 2013 at 3:55pm

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