The Case for Kicking the Pain Down the Road

For rapturous liberals, the course is clear and the argument irrefutable: The 2012 election gave President Obama a mandate to raise taxes on the rich, and the way to do it is to wring from cowed Republicans an end to tax cuts for the wealthiest Americans.

“Mr. Obama should hang tough ... even at the cost of letting his opponents inflict damage on a still-shaky economy,” wrote columnist Paul Krugman in The New York Times. “This is definitely no time to negotiate a 'grand bargain' on the budget that snatches defeat from the jaws of victory.”

It’s the Conan the Barbarian school of politics: “To crush your enemies, see them driven before you, and to hear the lamentation of their women.” 

Indeed, if House Speaker John Boehner and Senate Minority Leader Mitch McConnell enter Friday’s talks showing signs of trepidation, Obama may be right to go for broke. The president has earned his spoils, and progressivity is his rightful bottom line. If not now, when? If not him, who? 

But ending the Bush-era tax cuts for the rich is a means, not an end. The ultimate goal of the negotiations, as Obama noted in his press conference on Wednesday, “has to be jobs and growth.” The president’s strategy is only as good as far as it gets him toward prosperity. 

A long and acrimonious struggle over taxes between the White House and congressional Republicans, casting a pall over the holiday season, sending markets tumbling, and triggering an economic downturn that sends the rate of unemployment back up toward 10 percent, would be calamitous. If there is no obvious path toward consensus, the two sides may be wiser to kick the pain down the road, by extending the expiring tax cuts and postponing some or all of sequestration.  

The international economy is shaky. The U.S. cannot count on Europe or China to generate growth and demand. A roll down the fiscal slope is looking downright perilous. “We need stimulus in the short run,” former Treasury Secretary Lawrence Summers told the Washington Ideas Forum on Tuesday. “If nothing is done before Jan. 1, the odds that the withdrawal of demand will cause a major recession next year are overwhelming. 

“This is, potentially, the ultimate self-inflicted wound,” Summers added. 

Before insisting that the bloodletting must be now, the members of the Conan school of politics should weigh these statistics, from the heart of the Democratic base:

Of the 15 states with the highest unemployment rates, 12 went to Obama on Election Day, including Nevada (11.8 percent unemployment), California (10.2), New Jersey (9.8), Michigan (9.3), New York (8.9), Illinois (8.8), and Florida (8.7). Folks there aren’t craving for Republican lamentation; they want Obama to find them jobs. 

Analyze the faithful along demographic lines, and there’s the same insistent need. The unemployment level for young people is 16 percent. For African-Americans, it's 14.3 percent. For Latinos, it's 10 percent. 

Many of the members of these demographic cohorts, whose faith in Obama helped get him reelected, lost most or all of their wealth in the 2008 financial crisis and have not fully recovered. Wealthy liberals from insulated communities can suggest, like Krugman, that Obama risk inflicting “damage on a still-shaky economy.” But tens of millions of the president’s supporters don’t have that luxury. 

A Pew Research Center analysis of the Great Recession, published last year, found that Obama’s loyal minority voters suffered a far greater loss of wealth in the crisis than did white Americans.

“From 2005 to 2009, inflation-adjusted median wealth fell by 66 percent among Hispanic households and 53 percent among black households,” Pew found, “compared with just 16 percent among white households.”

The economic gains of years of struggle and the slow accumulation of assets—homes, cars, savings and retirement accounts—were wiped out. “As a result of these declines, the typical black household had just $5,677 in wealth … in 2009; the typical Hispanic household had $6,325 in wealth; and the typical white household had $113,149,” Pew noted.

Once one accepts that economic growth is Obama’s non-negotiable priority—and avowedly the goal of Republicans in Congress—the trail has been blazed. 

The Congressional Budget Office has peppered lawmakers with reports and white papers—three in the last week alone—that dwell on the weakness in the economy and argue (implicitly, because we’re talking about the nonpartisan CBO) that the preferred way of skirting the year-end “fiscal cliff” is to postpone the pain of austerity: extend the tax breaks set to expire and waive the spending cuts required by sequestration. 

A two-year delay in planned tax hikes and budget cuts would boost growth by 3 percent in 2013, the CBO estimates, with the creation of as many as 5.8 million jobs.

The CBO analysts warn that the delay must be temporary. Postponing the reckoning longer will lead to “a surge in federal debt” and “raise the risk of a fiscal crisis.” So, to reassure skittish investors and bring along fiscal conservatives, the pump-priming may have to have an end date. It may not be possible to waive all of the first two years of sequestration without offering some kind of alternative brake on spending or entitlement reforms. 

How do the Bush-era tax cuts as applied to the wealthy factor into this? 

Continuing all the expiring tax cuts would boost GDP by about 1.5 percent in 2013 and result in about 1.8 million new jobs, the CBO says. Continuing all the tax cuts except for the high-end rates on couples earning more than $250,000 a year would pare that growth to about 1.25 percent and cost the country 200,000 jobs in 2013. 

So Democrats may want to be flexible. Republicans might see the wisdom of cutting a quick deal if Obama agrees to keep the high-end tax rates below the Clinton-era top rate of 39.6 percent; or to accept a higher threshold of $500,000 or $1 million. The GOP won’t and shouldn’t "fall on its sword to defend a bunch of millionaires, half of whom voted Democratic and half of whom live in Hollywood," in the now-famous words of William Kristol, editor of The Weekly Standard. 

Obama knows that Boehner and McConnell have their own trump cards. The White House will need another extension of the debt ceiling in the first weeks of 2013, and more in the years to follow. Obama could benefit from a ratcheting back of Republican hostility toward his health care plan as the rollout of the Affordable Care Act continues. There are hints of bipartisan progress on Capitol Hill on immigration and tax reform. 

And Obama has his legacy to consider. Congress can’t move on to other crucial needs until it gets the country’s finances fixed, said Sen. Michael Bennet, D-Colo., a member of the Gang of Eight senators hoping to lead their colleagues to a bipartisan deal. But once that’s accomplished, success could build upon success. You could "add real velocity," he said.

It’s not the time for a prolonged confrontation, such as the showdown over the debt ceiling in the summer of 2011. 

Kicking the pain down the road takes a page not from Conan but from St. Augustine: "Da mihi castitatem et continentiam, sed noli modo." Give me chastity and continence, but not yet.