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More on the Gentle Fiscal Incline

[ 112 ] January 1, 2013 |

To supplement Erik’s links and analysis below, see Scheiber on the one hand and Sargent on the other. I still lean towards the former, for similar reasons — given how little he was able to extract out of the Republicans when he had an unusual amount of leverage to work with, it’s hard to imagine that the debt ceiling isn’t going to be used to come up with something worse. But we’ll see. Of course, this is not all on Obama — the administration apparently thinks that conservative Senate Democrats can be persuaded to sell out and preserve more of the Bush cuts if the House takes the lead, and history suggests that this fear is far from unfounded.

The only encouraging thing about this deal is that is reinforces my skepticism about assertions that Obama is inherently committed to making big entitlement cuts. The best you can say for this deal is that the cost-of-living chains on Social Security were taken out of the deal. This is only a win if they don’t reappear during the debt ceiling negotiations, but much better to compromise on tax rates than on Social Security.

Comments (112)

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  1. Both sides lost leverage for the next round in February/March. The Republicans won’t have the expiration of the green energy tax credits, unemployment insurance, or the middle-class tax cuts to hang over Obama’s head.

  2. Kal says:

    I’m a little surprised by this, in that it appears Obama is less committed to Social Security and/or Medicare cuts than I thought he was. He’s willing to put them on the table, of course, but if they were a major policy priority for the administration and top Democrats, I don’t see why they wouldn’t be in the deal.

    • DrDick says:

      I do not actually think that Obama is firmly committed to any particular policy in this regard. He is certainly a bit of a deficit hawk, and has been since he was in Congress, and, from things he has said, he seems to think we need to make some cuts to Social Security and Medicare to “save them”. I blame it on overexposure to Friedmanite economics when he was at Chicago.

      • And yet, there have now been multiple deals with Congressional Republicans that have not included these huge Social Security/Medicare cuts. I guess we all need to thank Republicans for saving our entitlements?

        • DrDick says:

          At least in part, yes. Also Congressional Democrats, who seem far more committed to preserving the New Deal and Great Society.

          • So what you’re saying then is that Obama is offering rhetorical cuts that neither party in Congress will agree to?

            • DrDick says:

              No, that is what you are saying.

            • LosGatosCA says:

              I’d say that. Obama talks about all kinds of adjustments to the safety net but neither party takes up his offers. That tells me either they know its a bluff and ignore it or they won’t touch it. More likely number two, based on the Republican experience under Bush in term 2 and death panels under Obama influencing 2010.

              As for the Chicago school influencing Obama’s view of economics, no doubt. Or he’s come to a similar view independently. See Krugman’s concerns on an ongoing basis about Obama’s use of austerity framing when it’s completely unnecessary. Obama seems to lack a certain sophistication in understanding macroeconomics in any case. Perhaps he’s just constrained his thinking due to his tendency to operate within the political limits defined by others in economic debates. In any case, he does not push the Keynesian macro envelope in any way. He’s clearly reluctant to do so.

        • Rhino says:

          I have never felt that Obama wants to cut any of these programs. I think he is willing to, if he thinks its the best option, but I think the ongoing trope that he is out there with a chainsaw to destroy the safety net was always bullshit put out by the Obama-betrayed-progressives crowd.

  3. cpinva says:

    which is as good a reason as any, to continue working to get rid of them.

    the administration apparently thinks that conservative Senate Democrats can be persuaded to sell out and preserve more of the Bush cuts if the House takes the lead, and history suggests that this fear is far from unfounded.

  4. Chatham says:

    The biggest problem for me is that this deal seems to make the Bush tax cuts for those making $450k and below permanent rather than just extending them. If that’s true, then it’s terrible. There might be some political will to raise taxes on the very rich, but I doubt we’ll see the political will anytime soon to raise taxes on those making $450k and below. And “Starve the beast” is going to inch forward even more.

    • “And “Starve the beast” is going to inch forward even more.”

      You realize that the only people who actually believe in starving the beast do so because they have no idea how government works, right?

      • Steve LaBonne says:

        A class which includes Republican Representatives who actually have the power to make it not work.

        • I’m not sure I get what you’re trying to say, but I don’t know that it matters, either. The starve the beast theory only works if you assume that, given a sovereign debt crisis somewhere in the future, the public at large would rather endure austerity and massive cuts to basic social service spending than increases in taxes on millionaires, a significantly smaller military industrial complex, and slightly higher inflation in the intermediate term. That is, shall we say, a touch unlikely.

          • DrDick says:

            You may want to take a look at Spain, Portugal, Greece, and Ireland.

            • The United States is distinctly not any one of those countries, and will not be a close approximation of any of them in the foreseeable future.

            • John says:

              You might want to notice that those countries can’t print money.

            • DrDick says:

              Brian & John -

              I am just noting that this is indeed possible and I am not convinced it could not happen here. The lack of their own currency has nothing to do with choosing between these alternatives (though it cuts out devaluing the currency and other possible responses). It is also the case that the wishes of the American people are not necessarily in play here, given GOP gerrymandering and perpetual control of the House for the foreseeable future. There are also a lot of Conservadems in Congress.

              • tonycpsu says:

                Not as many conservadems in 2013. Most of them have been replaced by conservapublicans, for good or for ill.

              • “The lack of their own currency has nothing to do with choosing between these alternatives”

                Um, yes it does. Quite literally it means that, unlike the U.S., they can’t literally print new money to pay off at least a portion of their debts, so addressing the debt crisis requires nothing but changes to taxes and spending.

                And, again, there’s an existential element to this as well. For the U.S. to get to the point that, say, Greece is, we’d have to see a change in circumstances that would essentially make us an entirely different country in terms of our economic standing.

                • DrDick says:

                  Which was not part of the choices you offered and was covered in my comment. What you said was:

                  the public at large would rather endure austerity and massive cuts to basic social service spending than increases in taxes on millionaires, a significantly smaller military industrial complex, and slightly higher inflation in the intermediate term.

                  None of those is dependent on controlling your own currency.

          • Chatham says:

            Yeah, I’m sure Republicans will agree to “increases in taxes on millionaires, a significantly smaller military industrial complex, and slightly higher inflation” and won’t demand cuts to social services.

            • Then why will people vote for them?

              • somethingblue says:

                Well, duh! Because they’re fiscally conservative and pro-family.

              • Chatham says:

                Has their extremism stopped them from controlling the house? I’m not sure betting on “people will realize they’re crazy and vote them out of office” is a good idea. Actually, I’m pretty sure that it’s a terrible strategy.

                • Well remember, we’re talking about a hypothetical future in which the United States government is facing an honest to god debt crisis, which would represent arguably the greatest economic crisis in the history of the country. I dare say that might change the country’s political landscape just a smidge.

                • Though even then, it’s already the case that Republicans’ desire to cut spending stops at the point where the spending in question primarily benefits Republican voters, so it wouldn’t even have to change all that much.

                • Chatham says:

                  And we’re talking about a political party that was ready to have the US go into default to get what it wanted, and is gearing up to do so again. To bet that they’ll do three things that are anathema to them in exchange for nothing strikes me as unwise, to say the least.

                • You realize that, short of an apocalyptic collapse or something, that it would take decades to get to the point at which the U.S. could conceivably have a debt crisis on its hands, right?

                • Chatham says:

                  Of course. But it only takes a few years for our leaders to decide that it’s something we have to deal with right now, and that spending cuts need to be part of any solution.

                • Well, okay. Yes, if the government decides to pursue the elite friendly way out of our incredibly unlikely but technically possible crisis and the public at large then refuses to vote for the opposition party, we would be fucked. So your solution is to pursue austerity and economic stagnation now to avert this?

                • Chatham says:

                  Why would we need to pursue austerity now? They could have gone with a four or five year extension to the Bush tax cuts for those making under $450k.

                • Why would Republicans have agreed to that?

                • JKTHs says:

                  Why did the Democrats only get the refundable credit expansions extended for five years?

                • Chatham says:

                  For the same reason they agreed to it in 2010?

                • “Why did the Democrats only get the refundable credit expansions extended for five years?”

                  I’m guessing because they weren’t supposed to be permanent in the first place.

          • JosephW says:

            You might want to take a look at the electorate before making such a blatantly silly comment.

            Everyone–EVERYONE–knew exactly what the GOPers want to do. Did you NOT hear what economic platform the Teabagging GOPers ran on? Nothing at all about “increases in taxes on millionaires” and everything about “cutting spending.” And while we can all sit back and relish the idea that “Well more people voted for Democratic Congressmen than GOPers blah blah blah,” the REALITY is that GOPers won a majority of the actual seats in the House and they (with their “starve the beast” Norquistian view of government) occupy a majority of seats in a majority of state legislatures and a majority of state governorships (and it’s that “majority of state legislatures” aspect that led to the packing Dems into fewer Congressional seats which allowed the GOP to win that Congressional House majority).

            Do you honestly think the majority of VOTERS elected GOPers with the idea that “Well, no, they won’t *really* try to do what they ran on once they get to Washington?” That kind of thinking is what led so many people to be “shocked” when Scott Walker went through with his plans. People who had a working knowledge of reality weren’t surprised at all; only those who view politics through some sort of rose-colored glasses were surprised.

      • Chatham says:

        Whether or not they know how the government works, they seem to have a decent idea about how politics work. The Bush tax cuts (along with wars and the recession) caused deficits to balloon, and those large deficits have lead for the recent calls to cut spending.

          • Chatham says:

            First the Republicans, then the chattering class, then certain members of the ignorant masses who say we can’t afford anything because we have to borrow money from China, then the Democrats. Soon you have Obama talking about how the government needs to tighten its belt. I doubt that he and others would embrace cuts so much if we had been running surpluses and not deficits for the past decade.

            Now, perhaps the Democrats are just really astute politicians and are bluffing about the cuts they have signalled that they’re willing to make. Maybe the ignorant ramblings of talking heads and people on the street don’t make much of a difference. Maybe the reports we heard that the administration asked for a smaller stimulus because they were worried about looking like they were spending too much money were wrong.

            Maybe. But from where I stand that seems like wishful thinking.

            • Please to be showing evidence that “the masses” support large spending cuts. And by that I mean actual spending cuts, not abstract cuts to spending that exists only in their imagination.

              • Chatham says:

                So you don’t think that “certain members of the ignorant masses” think we need spending cuts? Is your opinion that Democrats are bluffing when they say that they are willing to make spending cuts? Or that spending cuts would have the same support if we had been running surpluses as it does now that we’re running deficits?

                • “So you don’t think that “certain members of the ignorant masses” think we need spending cuts?”

                  Like, as in, at least two people? um, sure. So what?

                  “Or that spending cuts would have the same support if we had been running surpluses as it does now that we’re running deficits?”

                  Probably not, but so what? A) Is your contention that the government should be running a surplus even though there’s a catastrophic shortage in aggregate demand, b) for this to happen in the first place we’d likely need a completely different state of opinion that favored lower levels of spending to begin with.

                • Chatham says:

                  No, my contention is that the government should be running a surplus in times of plenty and go into deficit spending during recessions. My point is we’d probably see less political focus on cutting spending and more on, say, jobs if we hadn’t racked up the kind of debt we did during the Bush years.

                • “No, my contention is that the government should be running a surplus in times of plenty ”

                  But a) there’s no popular support for that position and b) that’s not what we did in the aughts, so what the fuck does it have to do with today?

                • Chatham says:

                  It’s quite simple:

                  1. It’s difficult politically to raise taxes now, especially on people that aren’t millionaires.

                  2. Massive tax cuts will cut into revenues that will increase the deficit.

                  3. If our leaders choose to cut the deficit at a later point, point #1 will mean that we’ll probably see some cuts to spending before we see taxes raised to make up for said tax cuts.

                  Hence, starve the beast. Tax cuts reduce revenue, revenue increases deficits, efforts to decrease the deficit will include spending cuts.

                • Except that it’s much harder to cut actual spending now than it is to raise taxes on rich people.

                • Chatham says:

                  Maybe. They are going to need somewhere around 2.8 trillion in the next decade to make up for the lost revenue. I highly doubt that’s going to all come from tax increases, but we’ll see.

                • Well, they’ll only “need” it if lenders suddenly aren’t willing to loan the U.S. government money, or if we wind up in a 1992-esque situation where crowding out is one of the economy’s main problems. If neither of those conditions are met, however, they won’t “need” to do anything.

                • Chatham says:

                  Eh, I side with Krugman on this. Though the deficit isn’t the problem right now, we’re going to have to cut it eventually, especially since borrowing costs will rise once we get out of this recession (and also since there’s a lot more our government needs to be doing). The Bush era “deficits don’t matter” mentality is only going to lead us into another mess.

    • You’re probably right about tax rates, but I’m more optimistic about reforms that raise revenue by closing loopholes that benefit the rich.

    • Rhino says:

      People with a working income around 450 k are not the idle rich. They are doctors, lawyers, engineers and small business proprietors…

      In addition, I see taxes going up on everyone for a while. Programs are needed and they need funding. Don’t be so sure the political will doesn’t exist. The 99% have been waking up over the last decade and they are increasingly unhappy with the wealth gap.

  5. SN says:

    “But we’ll see. Of course, this is not all on Obama — the administration apparently thinks that conservative Senate Democrats can be persuaded to sell out and preserve more of the Bush cuts if the House takes the lead, and history suggests that this fear is far from unfounded.”

    Indeed, because doing anything to fight against Democrats selling out in the senate would constitute “Green Lanternism” and that would be foolish because everyone knows actually fighting for something never works.

    Green Lantern!!!

    Obama has already undermined your position of November 29th. By agreeing to kick the can down the road we now enter indefinite deficit reduction negotiations. The frame of political debate in this country (5 years into a systemic stagnation) is now about the mix of cuts and taxes necessary to balance the government budget and not about how to restore economic growth so as to improve the standard of living of the majority of Americans. Since fighting for anything progressive is Green Lanternism we are left to always play on the defense so as to minimize how far and how fast The right and center can cannibalize the public sector.

    You are now reduced to finding the the silver lining in Obama offering up cuts to Social Security and Medicare but not actually making those cuts. Social Security used to be a third rail no one could even mention touching. Now, (thanks to a logic that posits all efforts at fighting for something you might not win in the next 22 minutes is pointless) we are reduced to being grateful that Obama didn’t actually act on his threat to cannibalize the most popular and most efficient program in the federal government. Whoopie!!!

    Green Lantern!!!

    • “The frame of political debate in this country (5 years into a systemic stagnation) is now about the mix of cuts and taxes necessary to balance the government budget and not about how to restore economic growth so as to improve the standard of living of the majority of Americans.”

      Well if that’s the case, the progressives who are fixated on raising upper income tax rates are as much a part of the problem as anyone else.

    • As I go about trying to come to a firm conclusion about this deal, I can’t help but note that people like our friend SN are holding forth with standard boilerplate and talking about process, more than commenting on the specific content of the deal.

      I find that encouraging.

      • SN says:

        Er, Joe, you were the one invoking Obama’s jujitsu negotiating style as a win, which is a process topic. Do you want to move the goal posts over to the content of the deal? Fine with me.

        • You can talk about whatever you want. Why are you asking me?

          Also, that’s not what “move the goalposts” means.

        • Hogan says:

          So before there was a deal he didn’t talk about the deal? Slippery bastard.

        • Er, Joe, you were the one invoking Obama’s jujitsu negotiating style as a win, which is a process topic.

          When did I ever discuss Obama’s negotiating style as a “win” on the substance of the deal?

          How can anything I wrote before the deal was announced be read as a comment on the merits of the deal?

          Since the deal was announced, have you seen me discussing process as a way of evaluating its merit?

    • Jeremy says:

      Obama offered the Republicans the opportunity to cut Social Security, and they didn’t take it because it still is the third rail of American politics. Meanwhile, he hasn’t been offering up cuts to anti-poverty programs like Medicaid, which the Republicans would take because they aren’t third rails. I think he’s doing this with the intention of getting the results he’s getting.

    • Scott Lemieux says:

      Indeed, because doing anything to fight against Democrats selling out in the senate would constitute “Green Lanternism” and that would be foolish because everyone knows actually fighting for something never works.

      I think you must have actually gotten a PhD from non-sequitur university.

    • JosephW says:

      Do you know anything at all about Green Lantern? I certainly do and I’m at a complete and utter loss as to whatever kind of analogy you’re trying to make.

    • Murc says:

      Indeed, because doing anything to fight against Democrats selling out in the senate would constitute “Green Lanternism”

      … it would?

      Can you explain how? This seems to run counter to the Green Lantern theory of negotiating as I understand it.

      and that would be foolish because everyone knows actually fighting for something never works.

      … it doesn’t? Any chance you could explain how and why not?

    • Djur says:

      Social Security used to be a third rail no one could even mention touching.

      Yeah, I remember the electoral consequences Ronald Reagan suffered for signing the 1983 Social Security amendments.

  6. TT says:

    The only encouraging thing about this deal is that is reinforces my skepticism about assertions that Obama is inherently committed to making big entitlement cuts.

    I don’t know if Obama is inherently committed to big entitlement cuts. My own sense is that he much prefers reforms to these programs that keep their basic structures intact and are in line with liberal/Democratic principles. My biggest fear is that Obama’s personal preferences quickly become irrelevant within the political contexts in which he operates. Thus with the fiscal cliff he could keep Medicare and Social Security off the table and train his fire on preserving/extending other priorities. But with the debt ceiling suddenly he finds himself having to give up a lot more than he might ordinarily prefer, mainly because he’s committed to responsible governing, whereas his interlocutors are not.

    Jared Bernstein nicely articulates this dilemma when discussing the belief among some Democrats in the White House and Congress that they have just as much leverage to extract concessions on the debt ceiling as the GOP does.

    • On the positive side of things though, given their repeated chances to say “yes” so far, it doesn’t appear that Republicans are even that interested in seriously demanding entitlement cuts.

    • But with the debt ceiling suddenly he finds himself having to give up a lot more than he might ordinarily prefer, mainly because he’s committed to responsible governing, whereas his interlocutors are not.

      That was equally true in July 2011, but such cuts never happened.

  7. JKTHs says:

    One thing I noticed is all the Democratic gets in the deal are temporary while all the Republican gets are permanent. I tell ya, if I held Harry Reid hostage in his office, I could probably walk away with $1 billion tax-free and still get to shoot Reid in the leg.

    • Jeremy says:

      The tax rates are permanent. Their not a “get” for either side, but a compromise between the two. I’d say that the Democrats took some temporary gains on stimulus measures in favor of holding out for a more favorable compromise after going over the cliff.

      • That includes the capital gains tax rate.

        • JKTHs says:

          It also includes the dividends rate, which is now linked to the capital gains rate for the foreseeable future rather than the ordinary income rate. It also locks in the estate tax at extremely generous parameters. It, however, leaves the energy extenders and refundable credits as future leverage for Republicans to extract concessions.

          • Are we not talking about whether the Democratic gains are permanent anymore?

            I was going to say something else about that. Did I miss my chance, and we’re onto something else?

            • JKTHs says:

              Sure, they do have permanent positive gains, but ones that were very easy to get given the circumstances. The rest of the package gives you the idea that it was the Republicans who had the leverage.

              • If you ignore the most significant Democratic-supported elements of the deal, and only look at the rest of the package, it looks very favorable to Republicans.

                Well, of course.

                • JKTHs says:

                  You’re ignoring the part where I said the Democratic gains were very easy to get. Obama said the $250K threshold was free, yet in conceding to $450K (which doesn’t matter much in reality but is psychologically important) he did not get a Democratically-favorable package on everything else.

                • Jeremy says:

                  Obama’s “I get that for free” line was in reference to the package he was working on with Boehner, which was for $800 billion in new revenue through tax reform without raising rates. This deal looks like it’s got $600 billion in new revenue, so perhaps Obama settled for less than he said he could get for free, but tax reform is still on the table to be bargained over.

  8. tonycpsu says:

    And now it sounds like the GOP is going to lard it up with spending cuts and send it back, which means we find out how desperately Obama and Reid’s caucus want a deal.

  9. Murc says:

    … holy shit, Cantor et al. may actually scuttle this thing.

    I know that I said last night I hoped the House nihilists kill this thing, but I’m not sure I actually meant it; it was late and I was drunk. I mean, WOW.

    And I can’t see Boehner bringing a bill that has less than majority Republican support to a vote, either. At least not until he’s safely the Speaker again.

    I had just assumed this was a done deal. Almost every Republican in the Senate voted for it!

    • Steve LaBonne says:

      This is more or less what I expected (and frankly hoped for)- no matter what the “deal”, the House teahadists will always want more. (Even the Senate Republicans must be getting heartily sick of them.) The only way it might be revived in the new Congress is after Boehner is re-elected Speaker- if he is. Otherwise, we’ll be at the bottom of that slope for a while- until the next Democratic retreat.

    • JKTHs says:

      I for one am looking forward to how the media will play the false equivalence game on this one, which is clearly entirely on Republicans.

      • tonycpsu says:

        The optics favor Obama significantly, and especially with the widening of the Boehner/Cantor rift, the press may actually be forced into telling the American people that this is all on the GOP. Obama sending Biden in (at McConnell’s request) and getting 89 Senate votes was a major sign of good faith. Now that it’s in the House, suddenly we’re back to the faction politics talk as the GOP tries to round up votes. I know the press can make anything look like BothSidesDoIt, but this one should be easy enough that a caveman TV journalist can do it.

  10. Steve LaBonne says:

    OK, if the result of all this shitshow is to set the precedent that the Hastert Rule can be broken, then I do definitely see this as a win for Obama and as putting him in a better position in 2 months than I thought. Establishing a bipartisan coalition of the sane in the House, while it will certainly not make progressives (including me) happy, is essential for the country to be governable at all for the next 2 years.

    • swearyanthony says:

      Yep. All it takes is for Boehner to stand up to Cantor and the nihilist faction. He’s well known for his courage.

    • tonycpsu says:

      The Hastert Rule was never a law of nature, so I don’t see much of a change in leverage just because they broke it under these extraordinary circumstances. As long as Boehner wants to keep his speakership (assuming he retains it — Cantor voted against passage tonight) he’s going to have to continue the “majority of the majority” policy.

    • tonycpsu says:

      Obummer put Boner on notice that the debt ceiling fights are over. I don’t know what makes him think the teahadists will listen, though.

  11. LosGatosCA says:

    We’re now officially at halftime.

    Looking forward to the second half:

    1. If Boehner gets canned (?) that would bode poorly for March.

    2. If Boehner gets no significant opposition, then the caucus has likely decided to make him the scapegoat for everything they don’t want to, but will have to, do. That bodes well for getting the minimum done. Boehner will get canned at the earliest time that Republican political options improve.

    3. If Boehner gets re-elected with a close vote he’s on permanent probation and all variations for the debt limit / sequestration scuffle are possible. He’ll get canned, same as option 2.

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