Obama can't quite keep it simple

[11/15: several updates at bottom]

In response to the first 'fiscal cliff' question in his press conference today, Obama seemed to shut the door on any alternative to letting the Bush tax cuts for the wealthiest 2% expire -- that is, to raising the top marginal income tax rate. But there was a little sliver of light along the doorjamb, and when Chuck Todd pushed on it, Obama swung the door open.

First, this seemed all but definitive:

QUESTION: You’ve said that the wealthiest must pay more. Would closing loopholes instead of raising rates for them satisfy you?

OBAMA: I think that there are loopholes that can be closed, and we should look at how we can make the process of deductions, the filing process easier, simpler. But when it comes to the top 2 percent, what I’m not going to do is to extend further a tax cut for folks who don’t need it, which would cost close to a trillion dollars.

And it’s very difficult to see how you make up that trillion dollars -- if we’re serious about deficit reduction -- just by closing loopholes and deductions. You know, the math tends not to work. And I think it’s important to establish a basic principle that was debated extensively during the course of this campaign.

OBAMA: I mean, this shouldn’t be a surprise to anybody. This was -- if there was one thing that everybody understood was a big difference between myself and Mr. Romney, it was, when it comes to how we reduce our deficit, I argued for a balanced, responsible approach, and part of that included making sure that the wealthiest Americans pay a little bit more.

I think every voter out there understood that, that was an important debate, and the majority of voters agreed with me. Not -- by the way, more voters agreed with me on this issue than voted for me. So, we’ve got a clear majority of the American people who recognize, if we’re going to be serious about deficit reduction, we’ve got to do it in a balanced way.

The only question now is are we going to hold the middle class hostage in order to go ahead and let that happen? 

 Wiggle, wriggle. Not going to extend a tax cut for the wealthiest 2%, which was a cut to their marginal rates. And, loophole closures won't bring enough revenue.  But, there may be some alternative to simply raising the top marginal rates: 

CHUCK TODD:  And then the follow-up to Jessica’s (ph) question, tax rates. Are you -- is there no deal at the end of the year if tax rates for the top 2 percent aren’t the Clinton tax rates, period? No ifs, ands or buts and any room in negotiating on that specific aspect of the fiscal cliff?

OBAMA: With respect to the tax rates, I -- I just want to emphasize, I am open to new ideas. If the Republican counterparts, or some Democrats, have a great idea for us to raise revenue, maintain progressivity, make sure the middle class isn’t getting hit, reduces our deficit, encourages growth, I’m not going to just slam the door in their face. I want to hear -- I want to hear ideas from everybody.

QUESTION: (OFF-MIKE) red line.

OBAMA: Well look, I believe this is solvable.

I think that fair minded people can come to an agreement that does not cause the economy to go back into recession, that protects middle class families, that focuses on jobs and growth, and reduces our deficit. I’m confident it can be done. My budget frankly doesn’t does it [see anon comment]. I understand that I don’t expect the Republicans simply to adopt my budget. That’s not realistic. So, I recognize we’re going to have to compromise. And, as I said on election night, compromise is hard. And not everybody gets 100 percent of what they want, and not everybody is going to be perfectly happy.

But, what I will not do is to have a process that is vague, that says we’re gonna sort of, kind of raise revenue through dynamic scoring or closing loopholes that have not been identified.

Okay, no vague promise to close unspecified loopholes later, and no credit for revenue imagined to flow from increased growth spurred by rate cuts. That would seem to validate the Times' Jonathan Weisman's claim that "Democrats" (e.g., Kent Conrad) are open to capping all deductions for the wealthy as an alternative to raising marginal rates:

a firm cap of around $35,000 would hit the affluent even harder than Mr. Obama’s proposal, which has previously gotten nowhere in Congress. 

Here's a version floated by Greg Mankiw on Nov. 10:

According to the Tax Policy Center, if we cap itemized deductions at $50,000 and keep tax rates as they are today, we would raise $749 billion in tax revenue over ten years.  Moreover, according to the TPC's distribution table, 96.2 percent of the extra revenue would come from the top quintile, with 79.9 percent from the top one percent.

This may be the germ of a possible deal between President Obama and Speaker Boehner: The speaker agrees to this tax hike if the president agrees to some fundamental reform of the entitlements, such as gradually but significantly raising the age of eligibility for Social Security and Medicare.

That is basically an updated Alternative Minimum Tax. A version of this approach could be step one in Obama's envisioned two-step process -- a rough equivalent of raising the marginal rates in teh top two brackets to Clinton-era levels.

Via tweet, here's Jonathan Bernstein's reaction to the politics of this alternative

:@xpostfactoid1 @jbplainblog what if revenues are a piecemeal reform - like, say, Mankiw's deductions cap for the wealthy?

11:36 AM - 12 Nov 12 · Details

12 Nov  Jonathan Bernstein ‏@jbplainblog

@xpostfactoid1 Sure. But the closer you get to "reform", the more likely it'll implode. Keep the revenue part simple. 11:39 AM - 12 Nov 12

Jonathan Bernstein ‏@jbplainblog @xpostfactoid1 Note that a deduction cap will have enemies that a rate increase won't have. 11:40 AM - 11:40 AM 12 Nov 12

Whatever the merits, Obama would seem to have undercut his "keep it simple, do what the people want" message.

P.S. One other troubling moment that brought on flashes of Obama's sliding as the debt ceiling loomed in the summer of 2011: he talked up the awful consequences of going over the fiscal cliff:

...we can all imagine a scenario where we go off the fiscal -- fiscal cliff. If -- if despite the election, if despite the dangers of going over the fiscal cliff and -- and what that means for our economy, that there’s too much stubbornness in Congress that we can’t even agree on giving middle-class families a tax cut, then middle-class families are all going to end up having a big tax hike. And that’s going to be a pretty rude shock for them, and I suspect will have a big impact on the holiday shopping season, which in turn will have an impact on business planning and hiring and we can go back into a recession.

It would be a bad thing. It is not necessary. So, I want to repeat. Step number one that we can take in the next couple of weeks, provide certainty to middle-class families, 98 percent of families who make less than $250,000 a year; 97 percent of small businesses; that their taxes will not go up a single dime next year. Give them that certainty right now. We can get that done.

We can then set up a structure whereby we are dealing with tax reform, closing deductions, closing loopholes, simplifying, dealing with entitlements. And I’m ready and willing to make big commitments to make sure that we’re locking in the kind of deficit reductions that stabilize our deficit, start bringing it down, start bringing down our debt. I’m confident we can do it.

While the two-step Obama outlined repeatedly makes sense,should Obama be suggesting that failing to cut a deal by year's end would likely tip the economy into recession?  Surely, as Bruce Bartlett argued yesterday, he could impose a retroactive tax cut for the lower 98% in short order if we go over the... curb. This sounds uncomfortably like a preemptive ceding of leverage to me.

Update: Chait, reacting to today's press conference, thinks Obama is on track to play hardball successfully; he seems untroubled by Obama's openness to alternatives to a marginal rate hike or by his talking up the dangers of going over the cliff. Ditto for Beutler and Ezra Klein, who reports that the administration don't think the deduction cap is viable.  Am I worrying too much? Why raise the possibility of a nonexistent third way?

Update 2: Bernstein also isn't too worried about Obama's refusal to draw a hard line:

I’m with those who interpret this more as an attempt to sound reasonable than as any real hint of willingness to compromise on the tax rates. Obama clearly wasn’t willing to give the kind of flat-out answer that Todd gave him a perfect opportunity for. But his formula — raise revenue, maintain progressivity and use real numbers — really doesn’t leave much room for anything other than raising the tax rates he campaigned on.

 Public presidential bargaining is always tricky....

So let me be the worrywart.


Update 3: At Wonkblog, Dylan Matthews wonders whether the Obama administration might be more receptive to converting tax deductions into tax credits, which reduce taxes for the rewarded behavior at the same rate for people in all income brackets, than to deduction caps, which kill incentives for the target behaviors such as charitable deductions. Also at the Post, Lori Montgomery and Zach Goldfarb cite Democratic sources claiming that "Obama is willing to set the top rate somewhat lower — around 37 percent or 38 percent — as long as the overall burden grows for families earning more than $250,000 a year."

Update 4: Jonathan Cohn is satisfied that Obama didn't leave too much wiggle room -- and dials in insider support:

You don't have to take my word for it. After the press conference I checked in with some Democratic Hill staffers who, in the past, criticized Obama for ceding too much ground to the Republicans. I heard no such criticism this time, nor have I in the last few days. "I think it was exactly right," one senior House aide told me. "He left a little room but made it crystal clear that top two rates had to increase." 

 Perhaps I should give myself a Nervous Nellie of the cycle award.