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By now, the state of play is painfully obvious. When it comes to the debt-reduction talks, Democrats expect a compromise with some tax increases. Republicans have ruled out the very idea of touching tax rates, but may be open to scrapping some tax incentives and deductions.
It seems awfully likely that Democrats will be unhappy, to put it mildly, with the end result, since the “deal” will probably feature massive spending cuts, no changes to tax rates, and paltry revenue from so-called “tax expenditures.”
But there’s one part of this that often gets overlooked: Obama has something of a trump card in his back pocket. Ross Douthat’s item on this late last week sounds right to me.
[If participants in the debt-reduction talks] do work out a deal — and this is the crucial part — it doesn’t have to include nearly as much in the way of revenue increases as a liberal president would normally prefer, because taxes are already scheduled to go up. Republicans are being intransigent on taxes in these negotiations for ideological reasons, but also because they know that if Obama is re-elected (which is more likely than not), they won’t be able to block tax increases: With a non-stroke of the pen, he can just let the Bush tax cuts expire — for the rich, or even for the middle class as well.
This is the trump card that liberals carry into all these negotiations. If we just do nothing on taxes except let the “current law baseline” run its course, their preferred vision wins.
Agreed. The tax deal worked out in December, much to the left’s chagrin, extended all of the Bush-era rates. Obama has said he won’t allow this again — come hell or high water, the president won’t let the wealthy keep the tax breaks they don’t need and the country can’t afford.
This matters a great deal, of course, in the context of the current talks. Dems want more revenue, Republicans won’t even consider tax increases. But the president can generate all kinds of revenue later, and there’s nothing the GOP can do about it.
The White House will probably offer Congress a familiar deal: current rates up to $250,000, Clinton-era top rates for those over $250,000. If Republicans agree, taxes on the wealthy go up and the deficit shrinks. If Republicans refuse, demand Bush-era rates for everyone, and reject a deal that shelters the middle class, taxes go up across the board and the deficit shrinks a lot.
It’s something to keep in mind as the debt talks continue.
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c u n d gulag on June 27, 2011 1:51 PM:
THANK YOU, Steve!
This is the 3,000 pound Donkey in the room:
if we do nothing except let the Bush tax cuts expire, we'll be well on our way to getting out of the deficit in 10 years.
No need for SS cuts.
No need for Medicaid cuts.
No need for Medicare cuts - except eliminate overcharges and fraud, and let ACA do its work.
Which is why the Republicans are trying to create a crisis where there isn't one. To eliminate as many safety net programs as possible before the countries demographics doom them to be the permanent Bubba and Bubbette Party.
Brenna on June 27, 2011 2:07 PM:
Of course, if Obama doesn't get reelected, the new GOP president would probably (and stupidly) sign a bill to reverse rates back to the Bush cuts.
Of course, if Obama loses, tax rates will be the least of our problems for the middle class and poor.
Jon on June 27, 2011 2:13 PM:
That's a fine plan, if you're willing to let the GOP go home taking credit for cut spending despite Democrats and then later be able to turn around and demagogue Democrats for raising taxes on the middle class. It sounds like a GOP dream to me. "Please, Brer Fox, please don't throw me into the briar patch."
It seems to me it would be much wiser and better to force the GOP now to agree to tax increases in return for their cuts, so that they cannot claim innocence next election. But maybe I'm not as clever as Brer Douthat.
Mimikatz on June 27, 2011 2:13 PM:
Just to be clear, if the GOP held enough seats notwithstanding an Obama victory, they could extend the Bush tax cuts, with or without a sunset, in 2013. A new Congress can set tax rate wherever they want, assuming the political will to do so. Of course the Dems could refuse to go along and try to block it, if they had the votes, but the idea that by not proposing to extend the tax rate or not needing to deal on something, as with unemployment benefits last time, Obama could preclude the GOP from extending the tax cuts isn't right--assuming the GOP has the votes to extend. I think now they will lose seats in both houses, and if Michele Bachman or even Rick Perry is the nominee, I'd be pretty certain of that, but theoretically the new Congress could extend, as could a GOP President whenever they succeed in nominating someone electable.
menthol on June 27, 2011 2:20 PM:
I agree with Jon. I don't like the "optics" on this, even if the policy is appropriate. Obama needs to find some political cover for raising taxes, or else completely pillory the Republicans for their intransigence starting ASAP. The messaging machine really needs to get going on this. Steve laid it out nicely in his entry about Sessions: the public needs to know exactly what the Dems are proposing and exactly what the Republicans are insisting on. Then take it to the court of public opinion, and DON'T GIVE IN. If the GOP crashes the economy, it's on them. They need to be forced to compromise, both for policy reasons and also because it will drive a wedge between their wacky base and the (few remaining) adults in the party.
menthol on June 27, 2011 2:23 PM:
Also, Boehner needs to roast in the hot seat. If we're lucky, this will be his Waterloo. ;-)
Mimikatz on June 27, 2011 2:25 PM:
Of course Obama could veto the tax increase, but there are ways to attract it to other things or use reconciliation, and brinksmanship is something re GOP is better at, seemingly. But the basic theory is correct given the unlikelihood of Obama being reelected with even stronger GOP majorities,
Ron Byers on June 27, 2011 2:27 PM:
When are is the media going to tell the truth. The current debt crisis was created by the Bush tax cuts ten years ago. People then knew that the debt would explode in 10 years unless the economy grew by leaps and bounds. We talked about it. The economy didn't grow by leaps and bounds and the debt is exploding. It will be worse next year and the year after that. Letting the damn Bush tax cuts expire is the thing to do, and pretty much the only thing that needs to be done.
Danp on June 27, 2011 2:29 PM:
This makes no sense to me. The Republicans get half their spending cuts, which only harm the poor and middle class, and the Dems get a promise that they will allow some tax relief for poor/middle class later? But like Lucy with the football, the Reps will demand permanent tax cuts for all or none when that day approaches.
Jeff on June 27, 2011 2:41 PM:
Didn't we already play this game? Bush tax rates were set to expire once already, and Obama signed a bill that extended Bush rates for all. Why should things be different next time around, when Republicans are going to refuse to allow a bill through unless it once again keeps taxes low for the wealthy?
bubba on June 27, 2011 2:46 PM:
1. This assumes Obama will get reelected. I am not willing to assume Or rely on that.
2. If a deal is done with anywhere near the size and type of spending cuts that have been previously leaked, including large cuts to Medicaid and Medicare, without significantly enhanced revenues, the optics will be horrible for all Dems including Obama (they will have given up the one issue--full throttle defense of Medicare--that has been leading their rebound from 2010, and the Gop will then not only get their way on large spending cuts but have great election fodder by being able to blame Dems for cutting Medicare. Which will work to signficantly harm Obama's and Dems' electoral prospects in 2012. Again should not assume Obama will win in 2012.
3. Even if Obama were to win, if Gop picked up more seats in Congress I at least have no doubt he will cave once again to Gop demands--the claims will be made early and often that the election meant the public does not want tax increases. I do not trust in Obama's intestinal fortitude regarding any promise he makes.
4. It is a sucker's bet--why else would douthat be pushing it.
Josef K on June 27, 2011 2:47 PM:
Will all that happen before or after the GOP, its leadership currently as looney as Bugs Bunny on acid, has destroyed the economy via misdealing on the debt ceiling?
ex-curm on June 27, 2011 2:53 PM:
This assumes Obama will someday have the courage to let the Bush tax cuts expire. I do not see any evidence that he has that courage.
Tom Allen on June 27, 2011 3:04 PM:
Yeah, as several of the commenters have noted above, we've seen this play out before. The tax cuts were set to expire last December, but the Republicans took the unemployed hostage, so the Democrats caved. This time they're taking the entire economy hostage, as was predicted. Next time they'll find something else, assuming there are any Democrats left in power.
And why should there be any Democrats left in power? People are worries about jobs, and Democrats want to run on cutting Medicare and Medicaid and raising taxes. The Republicans will crucify them -- cynically, hypocritically, and all too predictably.
Mimikatz on June 27, 2011 3:09 PM:
Medicaid cuts, but the Dems are not going to include cuts to Medicare beneficiaries. Those are off the table. There are other kinds of cuts that involve Medicare,such as cuts to Medicare providers through efficiencies, but there are not going to be cuts in for beneficiaries.
The latest is that the GOP has agree to cuts in defense spending rather than raise taxes. They are not dictating that all spending cuts come out of social safety net programs or Obama pet programs. Rather than raise taxes they qr agreeing to cut more programs that are traditional GOP faces, and I bet they get to some subsidies and tax expenditures to big interests rather than have to bite any bullets on taxes. There is a lot the Dems can agree to in these areas.
j on June 27, 2011 3:13 PM:
OK, I know I'm not so smart about political strategy, but by my way of thinking, a president usually walks the middle ground in his first term, perhaps even giving a little, if he gets re-elected for a second term he knows it is his last chance to do the big things so he goes for it and fights for it - like Bush said he had political capoital that he was going to use. I think if Obama gets re-elected we will see some big progress because it is his greatest desire to bring the US up to the 21st century, with infrastructure, fast track rail, science etc.The repubs who have the pwer of the purse right now want to see us go bqck to the founding fathers, or the time when people abandoned granny on the side of the road because they could not care for her. Right now (per 60 minutes) we have poor hungry children and a government fighting for tax cuts for billionaires.
sf on June 27, 2011 4:09 PM:
You assume Obama would, "with the stroke of a pen," let the tax cuts expire for the rich. But he seems so eager to cozy up to Wall St., and his instincts have led him so consistently to Wall St. yes men (c.f., Summers and his little dog, too, Timmy Geithner), that I have doubts. This man, for whom I voted with joy and hope, has reneged on too many promises. Who knows where he stands -- or might, that is, consider standing? I say that in real sorrow.
SF on June 27, 2011 4:11 PM:
Oops, sorry: that should have been "with a non-stroke of the pen."
beb on June 27, 2011 4:28 PM:
Obama caved on the Bush tax cuts once. He'll cave again. As long as the Republicans hold the budget hostage to their every demand the cuts will be extended. Or made permanent.
Anonymous on June 27, 2011 4:43 PM:
Comment from "gulag" is right on target. GOP knows that the demographic shift will do them in and this is essentially their last chance as a viable political entity.
The GOP is so drawn to Norquist inanity that they refuse to see that allowing disasterous Bush-era tax cuts for the rich to expire (sunset) cannot by any rational assessment be considered "raising taxes." These were temporary cuts enacted only through the reconciliation process.
Mr. Obama has assured Americans that he will not extend these cuts again. By doing nothing he allows them to expire. However, he will likely try to maintain the current rates for the middle class. Battle lines for 2012 continue to be drawn.
rob on June 27, 2011 4:44 PM:
I agree with all the folks who correctly point out: been there, done that, Obama caved. There will always be another economic 'hostage we have to save' and some democrats up for re-election who will argue for 'compromise'. Now is THE TIME to call the bastards' bluff.
Prup (aka Jim Benton) on June 27, 2011 5:00 PM:
Someone mentioned the 'optics' on this one, but they've been bad ever since the first dispute, because of the idea of keeping the tax breaks for some and hitting the rich. This in fact plays into the Republican 'taxes are bad' meme.
Damnit, taxes are what we pay for those things that only government can give us, and every one of us receives more in services than they pay -- from municipal services through federal ones. It will be a hard sell after the 30 years the Reagan meme has been triumphant, but Obama and Democrats should be making that case, and raising the rate across the board -- but also be going after and eliminating the tax breaks that keep corporations from paying any taxes at all. It might not give us all ponies, but it would go a long way towards giving us decent bridges, education, public transport, hospitals, etc.
Maybe even more importantly, by seeing this as a universal 'obligation of citizenship' it might get the populace as a whole to support cracking down on tax cheats and corporations, instead of having a bit of envy at them 'getting away' with something.Sadly, I see no evidence of any politician willing to make the case for either Keynesianism or simply for slight tax increases.
howard on June 27, 2011 5:25 PM:
it never fails: given 20 comments, you're bound to find a few that work off the premise that obama "caved" on the tax bill.
not one of the people accusing obama of caving explains either of two things: a.) why was it a good idea to increase taxes this year?; b.) since there were no votes for any other kind of stimulus, why shouldn't we maintain the at least moderately stimulative affect of lower tax rates?
i'm the first to agree that obama rhetorically is much too willing too concede and much too unwilling to call out the gop for insanity.
but i'm not willing to agree at all that given two choices - extend the tax cuts in toto or let them all lapse in toto - that letting them all lapse in toto was a good idea.
and therefore, i'm not willing to say that obama "caved;" that would assume there was a higher value in getting rid of the tax cuts now than at a future, stronger economic point (whenever that arrives, of course).
now, anyone who wants to say that obama is insane for even dignifying the notion that we need to worry about the deficit in 2011 gets my second, but that's not what the commenters up above are saying....
emjayay on June 27, 2011 7:23 PM:
Ron Byers: You may have noticed that the mainstream media in the US don't do much beyond reporting within conventional wisdom. Or reporting on pretty much nothing at all of any consequence, the more local and on TV you get. Then there's the big chunk of rabidly pro far right continuingly lying Limgbaugh/Fox News section. And a much smaller left and right print media. So it's not like the media is going to frame anything in any way you'ld like to see.
What you see as missing I think must come from the old Bully Pulpit. Has Obama been mentioning the Bush and Reagan Deficit every day for two years? The Two Wars Plus a Tax Cut For the Wealthy Deficit? What if he had been? Where would conventional wisdom be then?
Rick Taylor on June 27, 2011 8:06 PM:
That may be true, but why on earth should we leave that as a negotiating card for Republicans to use later? Democrats have a history of putting off fights until the other side has the advantage. That we might have a strong position on discontinuing the Bush tax cuts later, in no way justifies a lousy deal now.
Rick Taylor on June 27, 2011 8:16 PM:
Plus do we need to point out this is yet another case where Democrats went in compromising with themselves. If they'd really wanted a sucky deal, the could have at least started by demanding a 1:1 ration of tax cuts to spending cuts. Then if Republicans had wanted to, they could have made a show of bargaining them down, to deflect criticism from their base. By starting by asking for 20%, Republicans had no choice but to insist on 0%.
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