Sunday, July 31, 2011

Obama's uncertain trigger finger

The debt ceiling deal negotiated today relies heavily on triggers for future action. The finger on the final trigger is the president's. Hence, from a progressive's point of view, the deal is only terrible if you mistrust the president.  Unfortunately, the way the deal went down makes it very hard to trust the president.

As Jonathan Chait has been pointing out for weeks, progressives are better off with a cuts-only deal, end-stopped by the expiration of the Bush tax cuts on Dec. 31, 2012, than with the revenue-light grand bargain Obama was negotiating with Boehner. That deal would have raised only $800 billion in new revenue over ten years, roughly the amount that would be gained by letting the Bush cuts for the wealthiest 2% expire while leaving the bulk of the cuts in place. Expiration of all the Bush cuts, in contrast, would raise an estimate $3.6 trillion in new revenue of ten years.

The deal negotiated today calls for $900 billion agreed-on cuts in discretionary spending over 10 years and establishes a bipartisan committee of senators and MCs to propose a long-term plan that reduces the deficit by at least another $1.2 trillion. Congress must give that plan an up-or-down vote without amendments.  If the plan is voted down, or (I think) if the committee fails to agree on a proposal, that failure triggers $1.5 trillion in automatic spending cuts, split evenly (as of now) between domestic and defense spending. Ditto if the president vetoes the plan.  The Democrats failed to get tax increases included in the trigger, despite Harry Reid's announcement yesterday that they would not agree with a plan that failed to do so.

The trigger behind the trigger is the Bush tax cuts.  Obama, if he were a different person, could threaten to veto any any plan put forward by the committee that did not include tax reform yielding, say, $2 trillion in new revenue over ten years -- the amount proposed by Bowles-Simpson.  If no such plan materialized, and automatic cuts were triggered, he could also promise to veto any subsequent tax legislation that did not raise said $2 trillion (or whatever benchmark he chose). If no such legislation emerged, the Bush cuts would all expire, and the additional revenue, coupled with the triggered spending cuts, would put the budget in effective balance.

Obama is in fact indicating rather weakly he will use this this leverage:

a White House official points out that the president has not given up on a fight over tax revenues.

For starters, the official said, the Bush tax cuts, set to expire at the end of 2012, will serve as a sort of “trigger” to guarantee a major revenue increase. After all, even if Obama loses his 2012 reelection campaign, he would still be president until Jan. 20, 2013, and could veto any legislation seeking to extend those cuts.
I think it's fair to assume that Obama will not let his (first?) term end without securing approximately $1 trillion in (forecast) new revenue over the 10-12 years beginning in 2012. The problem, as I've pointed out before, is that he doesn't want to raise much more than that. He is holding to his 2008 promise not to raise taxes on Americans earning less than $200k ($250k for families), and he's not willing to use tax reform as cover to do so (by reducing targeted breaks while reducing rates, if doing so results in net increases for anyone but the wealthiest). He is to the right of Bowles-Simpson on substance, not as a result of poor negotiation.

For a refresher on Obama's tax priorities -- and a promise that he will go as far on taxes as outlined above --  look again at the press conference he held after striking his tax cut bargain with Republicans in December 2010 (my emphasis):
because of this agreement, middle-class Americans won’t see their taxes go up on January 1st, which is what I promised -- a promise I made during the campaign, a promise I made as President.

Because of this agreement, 2 million Americans who lost their jobs and are looking for work will be able to pay their rent and put food on their table. And in exchange for a temporary extension of the high-income tax breaks -- not a permanent but a temporary extension -- a policy that I opposed but that Republicans are unwilling to budge on, this agreement preserves additional tax cuts for the middle class that I fought for and that Republicans opposed two years ago...

Now, I know there are some who would have preferred a protracted political fight, even if it had meant higher taxes for all Americans, even if it had meant an end to unemployment insurance for those who are desperately looking for work.

And I understand the desire for a fight. I’m sympathetic to that. I’m as opposed to the high-end tax cuts today as I’ve been for years. In the long run, we simply can’t afford them. And when they expire in two years, I will fight to end them, just as I suspect the Republican Party may fight to end the middle-class tax cuts that I’ve championed and that they’ve opposed.
While Obama's personal endgame may not have changed, I do think he's convinced his party and the world that he can be rolled. The December press conference was also the one in which he himself said that the Republicans had held the American people hostage, and that he negotiated with them because he was not willing to see the American people be harmed. A subsequent exchange with Chuck Todd resonates grimly (for Obama's supporters) today:
TODD: If I may follow, aren’t you telegraphing, though, a negotiating strategy of how the Republicans can beat you in negotiations all the way through the next year because they can just stick to their guns, stay united, be unwilling to budge -- to use your words -- and force you to capitulate?

THE PRESIDENT: I don’t think so. And the reason is because this is a very unique circumstance. This is a situation in which tens of millions of people would be directly damaged and immediately damaged, and at a time when the economy is just about to recover.
Now, of course, the president has validated political hostage-taking with a vengeance. He embraced negotiations under threat of default as "a unique opportunity to do something big" -- when it was in fact another "unique situation" in which billions of people would be "directly damaged and immediately damaged" if negotiations broke down.  He bound himself over as a hostage. He shouldn't be surprised if none of his supporters feel any confidence that he'll be willing to turn the tables in a fair way, risking the "damage" of Clinton-era tax rates for all Americans.

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