Monday, December 06, 2010

Bringing home the borrowed bacon for the dispossessed

Like most progressives, I have been bitterly disappointed by Obama's refusal to use presidential power to force the sunsetting of the Bush tax cuts for the wealthiest 2%.  It has seemed simple: had Obama announced in August, September, or even immediately after the election that he would veto any bill that extends the tax cuts for income over $250k per family/$200k per individual, Republicans would have either had to cave now or start over -- fast -- to salvage what they could of the expired tax cuts early next session. The notion that the GOP would then be able to blame Obama and the Dems for "raising taxes" seemed ass-backwards.

While Obama could have won the short-term optics, though, its appears that with the deal just cut with the Republicans he is betting, both substantively and in a two-year political play, on getting whatever he can to jolt the economy and relieve those who are hurting most. Further tax cuts for the top 2% -- and large cuts to the estate tax -- are inefficient, unjust, negligible stimulus. But 13 months of unemployment insurance extension is not. Nor is a payroll tax cut, or a continuation of the stimulus's tuition tax credit and expanded earned income tax credit, nor accelerated writeoffs for businesses' equipment investments.

What this amounts to is a messy, inefficient, hugely expensive extension of the stimulus -- the Times puts the price tag at $900 billion over two years.  But what Obama's won is some genuine stimulus -- and hence an enhanced shot at decent economic growth prior to the 2012 election, not to say income boosts for the middle and less-than-middle class to offset the latest giveaway to the wealthy.  None of that would have happened had he "won" the battle of the sunset.

With progressives, Obama has taken out a large political IOU. The battle over tax rates remains to be fought another day. Best case, it could become moot if a genuine deal could be worked out to phase out tax expenditures (targeted tax breaks such as the mortgage deduction) in favor of lower marginal rates.  Medium case, the economy will be strong enough in 2012 for Obama to win the rematch when the tax cuts sunset once again. Worst case, we ride the Bush tax cuts to national bankruptcy.

Personally, I've got my eye on another, shorter-term IOU. I hope fervently -- and will think better of his much-maligned negotiating skills if it proves so -- that he has extracted a commitment to get New Start -- and maybe DADT -- through the lame duck Congress.  I have suspected for weeks that the arms reduction treaty is his top priority in this session (though perhaps "top priority" is wrong; all the pieces interlock). Let's see how that plays out.

UPDATE 12/7: The Times editorial board uses the "p" word while condemning the deal Obama struck:
Perhaps he wanted to placate the main proponent of gutting the estate tax further, Senator Jon Kyl of Arizona, who has also been working to block a vote on the New Start arms control treaty. Yes, the Republicans were also holding the nation’s security hostage to their relentless drive for tax cuts for the wealthy.

All of this only validates the Republican strategy of obstruction, and invites more.
Yes, this deal will look far weaker if Obama can't get New Start through (Condoleeza Rice endorsed it in a WSJ op-ed today). But the argument that the deal "validates the Republican strategy of obstruction" might be turned on its head. Getting some relatively efficient stimulus in return "validates" the possibility that the Republicans may accede to some measures that could help Obama (and the nation) politically. Their political interest, which they do not shrink from pursuing, is to extend the suffering and choke off the stimulus. 

For the Times, as for most progressives, it's an article of faith that Obama could have pinned the expiration of all the Bush tax cuts, if a showdown came to that, on the GOP.  In fact, that's obvious to all -- by a large margin, Americans do not favor extending the cuts for the top 2%. Surely it's been obvious to Obama too. Not being willing to risk a standoff, total sunsetting, and subsequent battle royale to swiftly restore most of the cuts can be seen as a sign of strength as easily as of weakness. Obama is not afraid to look weak in order to keep defibrilating the economy. Again, the question is whether, had Obama been willing to force a showdown, he could have also pressured and shamed the Republicans into accepting the stimulative measures he wanted.

3 comments:

  1. I don't agree with your political calculations at all. The veto is a seldom used and high profile lever in our constitutional system. Even a threatened veto would put the GOP in a position to blame Obama if everyone's taxes went up. Once Jan 1 rolls around, Obama instantly gets saddled with "the largest tax increase in the history of the nation." Since everyone knows the Pubs are better with message discipline than the Dems, they have the good chance to win the argument.

    Next year's Congress features MORE REPUBLICANS, who just got swept into office by vilifying the president at every turn. You're not going to shame them into doing anything. In fact, my guess is that they'd be more than happy to drag their feet on all of this and blame it on a prospective Obama veto. Or they would send him a bill that extends all the cuts and forces him either to veto it, where they can say that he voted against tax cuts for EVERYONE, or get him to go back on his veto pledge.

    A fight like that would allow Republicans to get what they want: a fight with Obama that they can spin as one that he started, removing his "reasonableness" advantage. And that will spin it as him wanting to raise taxes.

    This is the way for him to go, and I think it is right policy wise as well. Raising taxes in this economy is not a good idea.

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  2. Pace Krugman, it appears the employment numbers will be goosed only ever so slightly. If it's stimulus that Obama got, its political utility will probably be limited. But what won't be limited is the damage to a nation in thrall to a delusion: that higher taxes are always wrong regardless of circumstances. 2012 will simply rehash the same bromides wrapped in the same hypocrisy. Only spending cuts on unfavored classes will bring down the deficit. Good luck winning that argument with an electorate trained by our political class and punditocracy to disavow any pain for "producers".

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  3. There's another dimension I haven't seen commented upon anywhere. On Dec 31, 2012, Barack Obama will still be president whether or not he wins the 2012 election. If he wins, he will have the political strength to impose the sunset of the high-end cuts. If he loses, he will still have the opportunity to do so as a lame duck, putting the Republicans in the position of having to re-legislate them in 2013, possibly over a Democratic Senate (or at least a Democratic filibuster in the Senate). Even if they have the White House, that is not a straightforward task.

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