This Deal Did Not Have to Happen

-- Posted by Neil H. Buchanan

My new Verdict column discusses the tax bill that Congress just passed, and that President Obama signed yesterday.  My broad reaction was that this was a strategic nightmare for Democrats, with the President getting virtually nothing after negotiations in which he held enormous bargaining leverage.  I point out in particular that the giveaways to which Obama agreed are permanent giveaways.  That is, he set it up so that there will not be another time when taxes will be set to revert to higher rates, meaning that Republicans will never again be forced to negotiate with him to prevent taxes from rising.  It will take affirmative votes from Republicans to increase taxes, forevermore.  In other words, taxes will not rise as long as the House continues to be gerrymandered (at least, until demographics overcome even the most aggressive redistricting schemes).

Although some people are saying that we should be happy that Obama did not end up giving away the store on Social Security, which his late-December deal with Boehner (scotched by House Republicans, because it raised taxes on incomes over $1 million per year) would have begun to do, I say, "Give him time."  He has now, as I say, made it impossible to pass tax increases.  Not just higher tax rates, but any new tax revenues, will soon be off the table.  Although the Norquistas were being told that it was OK to vote to raise more revenue from closing loopholes and eliminating tax expenditures, that was entirely in the service of preventing tax rate increases.  With those off the table, we can forget about increasing revenues.  We will soon be back to starving the beast, which will allow Obama to do what he has apparently wanted to do all along: cut Social Security and Medicare, to advance the center-right economic agenda for which he has stood all along.

Although there are plenty of reasons to criticize the President, there are others who also deserve scorn.  Obama's Congressional enablers apparently "hailed the compromise" (as one front-page headline put it yesterday in The New York Times)  Notably, the estate tax giveaway (which, again, is not only permanent but indexed to inflation) was apparently forced on Obama by farm state Democrats, who actually buy into the long-discredited myth about families having to sell their farms to pay estate taxes.  At this point, Republicans have set it up exactly as they have always wanted: The estate tax affects almost no one (approximately 99.7% of estates will be untaxed), but it will still exist, providing a never-ending basis for fundraising from enraged plutocrats and wannabes.

The larger issue is that this deal did not have to happen at all.  I argued two years ago, when Obama outrageously caved on extending all of the Bush tax cuts in the first place -- and when, even though he was explicitly reminded about Republicans' promises to use the debt ceiling to bludgeon him and the country, he blithely asserted that Boehner would be reasonable about that issue -- that Obama should have simply let the tax cuts lapse.  But would that not hurt people, including the lower-income people whose taxes should not be increased?  Of course it would, if those tax increases were permanent.  They would not, however, have to be permanent.

In a world that is even minimally sane (that is, even allowing for the anti-tax insanity that defines the other major party), it should be possible for a Democrat to say in advance: "Look, if we do not act until after January 1, taxes will rise, and then we can all vote to decrease taxes.  So let's skip the unnecessarily disruptive temporary tax increase and do this intelligently."  That, however, is no longer how the world works.  Obama had the country with him, and everyone knew that the Republicans were blocking any tax increases on the rich.  All he had to do was let January 1 come and go, and listen to the wails from the public about their tax increases.  Then, he could tell Congress that they could vote for tax cuts for real, on his terms.  (He should, of course, have made the cuts temporary.)

Not only did Obama not show the patience necessary to take full advantage of the strong hand that the existing law provided, but he panicked.  Sending in Biden to broker a deal at the last minute, literally working past midnight on New Year's Eve, was a sign of desperation and weakness.  As Paul Krugman put it yesterday, Obama "gave every indication of being more or less desperate to cut a deal before the year ended."  Krugman correctly argues that this gives Republicans reason to think that they can roll Obama during the upcoming debt ceiling fiasco-to-be.  It is worse than that, however.  Obama extracted virtually nothing from an advantageous position, because he somehow convinced himself that he needed to get the deal done before tax increases hit.

Of course, he then agreed to a deal that did allow taxes to rise on lower- and middle-class people, in the form of the expiration of the 2% payroll tax cut that had been in place for the past few years.  That tax increase is arguably not a tax increase, because it merely restores the status quo ante, except that the expiration of the Bush tax cuts -- all of the Bush tax cuts -- would have been exactly the same thing.  One can frame it however one wants, but a person earning $60,000 in 2013 will pay $1200 more in payroll taxes than he did in 2012.

What do I think Obama could have gotten?  No one can say for sure, but the point is that we never even saw him try very hard.  We do know that he has three huge fiscal problems looming, that will have to be confronted before the next baseball season begins: (1) Increasing the debt ceiling (which must happen, because nominal debt cannot stay at $16.4 trillion forever, without causing a depression), (2) the automatic spending cuts from the idiotic super-committee process that was created during the 2011 debt ceiling madness, and (3) a budget for the remainder of fiscal 2013 (or, if some Republicans have their way, a series of temporary budgets, with Obama offering concessions in exchange for each new extension).

Admittedly, Obama is in a terrible position, because the Republican majority in the House will make it simply impossible to do anything sensible.  Even if Obama were to take the advice that Professor Dorf and I have so generously offered regarding nullifying the debt ceiling statute, he still will be faced with a crowd that has no problem forcing a government shutdown.  But conceding in advance on the debt ceiling, and making it clear that he really is anxious to give away Social Security and Medicare is not the way to negotiate with anti-government lunatics.

The story goes that the famous radical known as Mother Jones was once asked: "What exactly is it that you want?"  Her answer: "More!"  Apocryphal or not, the story captures my feeling about what Obama should have done here.  Instead, when Republicans asked, "What do you want?" he replied: "Could I get a deal before midnight, please?"  He could have gotten more.  This deal did not have to happen.