Just How Bad Was Obama's Fiscal Game?
Even as the United States found itself poised to go over the fiscal cliff on New Year's Eve, a deal was emerging — and liberals did not particularly like it. It's not that President Obama compromised on tax rates — though they didn't like that either — it's that he compromised on tax rates after he insisted he wouldn't compromise on tax rates. The deal being hammered out in the Senate reportedly would extend the Bush tax cuts for income under $450,000 — instead of the $250,000 Democrats have long wanted — and estates worth more than $5 million will be taxed at 40 percent. Unemployment benefits would be extended, but Social Security cuts appear to be off the table for now. Here's why liberals — including a former member of Obama's economic team — think Obama's got no game.
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Jared Bernstein, former member of Obama's economic team. Compromise is expected, he writes, but wealthier people will get the smallest tax hike Obama's offered — including during the debt limit fight in the summer of 2011.
The thing that worried me most in the endgame is that the WH would be so intent on a deal that they’d lock in too few revenues with no path back to the revenue well, and that they’d leave the debt ceiling hanging out there...
Those fears will be realized unless the President really and truly refuses to negotiate on the debt ceiling and is willing to blow past those who would stage a strategic default. If he is not, and if this cliff deal passes, then I fear the WH may have squandered its hard won leverage.
New York's Jonathan Chait. Obama is revealing horrifyingly bad negotiating skills, Chait says, by agreeing to letting the Bush tax cuts expire on income over $450,000, instead of $250,000, which he campaigned on.
"[T]the tax cuts are the one area where [Obama] enjoys overwhelming leverage over the Republicans. Their only threat is to block extension of tax cuts on income under $250,000, a wildly unpopular stance countless Republicans have acknowledged they could not sustain for long without courting an enormous public backlash. This is the hand where Obama needed to collect all the chips. Instead he is allowing Republicans to whittle down the sum by essentially threatening to shoot themselves in the head."
Obama only encouraged Republicans to play chicken with the debt limit in a few months: "Obama may think his conciliatory approach has helped avoid economic chaos. Instead, he is courting it." In a followup post, Chait says new details of the reported compromise make it seem "less bad." He says, "What we have now is a spectrum of outcomes that will play itself out over the next few months, ranging from 'okay' to 'terrible.'"
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The New York Times' Paul Krugman. Krugman calls Obama the "Conceder in Chief?" He sees "a bad and upsetting deal but not as terrible as initial rumors had it." There were no cuts to Social Security, Medicare, or Medicaid. But Obama traded $150 billion or so in taxes on the wealthy for unemployment benefits being extended for a year and other spending provisions. The worst part, Krugman says, is that Obama revealed he will cave on what he wants most. "[W]henever the president says that there’s an issue on which he absolutely, positively won’t give ground, you can count on him, you know, giving way — and soon, too."
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Iowa Democrat Tom Harkin. Harkin said on the Senate Floor Monday, "As I see this thing developing, as I have said, no deal is better than a bad deal... and this is a very bad deal, the way things are shaping up."
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The New Republic's Noam Scheiber. Schieber says he actually hates the reported compromise. "I think the president made a huge mistake by negotiating over what he’d previously said was non-negotiable," Schieber says, referring to the Bush tax cuts. "If Obama will cave even when he’s got all the leverage, when won’t he cave? Never, the Republicans will assume."
The New Republic's Timothy Noah goes further: "Kill this deal."
At Lawyers, Guns & Money, Scott Lemieux writes, "As always, it’s not that I'm opposed to any possible deal that makes concessions on tax rates, but I'm certainly opposed to concessions when the Republicans aren't actually offering much of anything in return."
...and the White House's Case
The Washington Post's Greg Sargent writes that the White House thinks Republicans might not be as willing to give on tax rates after we go over the cliff as some liberals predicted.
And so, the idea is that it’s better to lock in a deal on rates now, at, say, $450,000, extend unemployment benefits, and pocket those gains and continue the fight next year. Raising the income threshold is obviously not desirable, but Dems will have broken the decades-long GOP opposition to raising tax rates on the rich, pocketed hundreds of billions in revenues, made the tax code more progressive, and extended unemployment benefits — all without agreeing to any spending cuts yet...
Republicans will use the debt ceiling to extract spending cuts, but Dems might counter by demanding more revenues via tax reform that closes loopholes and deductions for the wealthy.
