Tax Cuts Forever?
If you line up the events of the past two weeks in Washington with the statements made by politicians about them, it's more or less impossible to make sense of the deal struck between the White House and Congressional Republicans, which would extend the Bush tax cuts for two more years and unemployment benefits for thirteen months, with some additional stimulative tax cuts thrown in.
The Republicans have spent two years—an entire election cycle and postelection victory lap—repeating with tourettic persistence dire warnings about the existential threat posed by large deficits and mounting government debt.
And yet, amazingly, these same Republicans (and a few conservative Democrats), who love to offer lectures about the necessity of shared sacrifice, also spent the week demanding that all the Bush tax cuts be made permanent, a policy that would increase the debt over the next ten years by an astounding $3.3 trillion. Occasionally, you would find politicians oscillating madly between these two positions in the same paragraph or media appearance, reaching its reductio ad absurdum with a blog post about Kent Conrad's views on the matter that George Stephanopoulos headlined: Sen. Conrad: Extend All Tax Cuts; Time to Get 'Serious' About Deficit.
This apparent contradiction makes sense only if you understand what has become so manifestly obvious that writing it out makes me bored and angry: conservatives do not care about deficits or the national debt. Nothing they have done over the past several decades—from the record deficits of the Reagan and Bush/DeLay years to their party-line opposition to nearly every legislative measure (public option healthcare reform, cap and trade) that would reduce the deficit—suggests otherwise. The great spokesman for the so-called fiscal hawks in the GOP caucus, Wisconsin's Paul Ryan, not only voted against the largely conservative recommendations of the president's deficit commission but in 2003 cast the deciding vote for Medicare Part D, a corporate giveaway and entitlement expansion that was unfunded and will, according to the Washington Post's Ezra Klein, add "$400 billion to the deficit in the first 10 years, and trillions more in the decades after that."
What Republicans do care about is defending the incomes of the country's wealthiest, distributing income upward and cutting taxes in order to make progressive governance impossible. Obama was right to say in his press conference that tax cuts for the rich are the Republicans' Holy Grail.
Which is why they were fine with throwing in that bunch of new tax cuts with the Bush tax-cut extension, at a cost of more than $300 billion. They know that by extending the upper-income cuts now, not to mention the historically low (35 percent) rate of estate taxes, they have all but foreclosed the possibility of rates being raised in two years. Tax cuts today. Tax cuts tomorrow. Tax cuts forever.
And what of the White House? Well, it seemed to enter the past few weeks with the upper hand. In September John Boehner said that if faced with a choice between extending only the middle-class tax cuts or no cuts at all, he'd suck it up and vote for the White House's preferred option. Obama campaigned in 2008 on allowing the Bush tax cuts for top earners to lapse—it was a central plank of his platform. The deficit hysteria provided a useful rhetorical tool to highlight the budget-busting cost of those cuts—$700 billion over ten years—and also allowed Obama to make a basic case for equity. According to The Huffington Post, Obama had "described the Bush-era program that he's now adopting as his own as 'tax cuts for millionaires and billionaires' no fewer than 50 times."
Despite Republican attempts to carp about "raising taxes on job creators," the public, in poll after poll, has expressed majority support for extending the tax cuts for those who earn less than $250,000 and letting the cuts for top earners expire. A December 2 CBS poll found that by a 2 to 1 margin Americans favor allowing the tax cuts for top earners to expire over extending all of them.
What's more, the official Republican position, expressed in a letter signed by all forty-two GOP senators, was that they would not allow the Senate to vote on anything until the tax cuts were extended. With 2 million people set to lose their unemployment benefits in December, this meant that the GOP was ready to put 2 million Americans out on the streets the week before Christmas, unless millionaires got tax cuts!
So why did the White House compromise? It was partly the familiar logic of the filibuster. The forty-two senators really can, under current rules, shut down the chamber and stall a vote on the Dream Act or "don't ask, don't tell." But part of it was that the final deal, despite White House protestations, was likely not far from what Obama wanted. It's essentially what former OMB director Peter Orszag advocated in his first New York Times column, penned just a few weeks after leaving the administration.
My sense is that the White House economic and political team is starting to panic as they recognize the stubborn persistence of unemployment. They know the economy needs more stimulus, and that Republicans are loath to allow them to deliver it. Through this deal they were able to secure some stimulative tax cuts, like the payroll tax reduction. Briefing liberal writers, the White House sold the plan as stimulus 2.0. And even if tax cuts for the rich aren't stimulative, it's money into the economy. At this point, the White House will take what it can get.
It's the standard bribery model of legislating that has come to characterize Washington in the era of oligarchy: if you want to put food on the table of the unemployed, you must lavishly wine and dine the CEOs and bankers who laid them off. Obama didn't create this system, but he is making it stronger before our very eyes.