Mitch McConnell’s gambit throws even more uncertainty into the debt limit talks, although I can’t see why Republicans in the House would acquiesce to this exactly, and I really don’t understand how McConnell thinks he can force spending cuts denoted by the President – an unconstitutional action if there ever was one – through this proposal.

So it is worth going back over what almost happened over the weekend, and the enormity of the deal that was offered to Republicans by the President. It wasn’t just the use of chained CPI for calculating the COLA, which would cut Social Security, disability and veteran’s benefits along with a regressive tax increase; it wasn’t just the raising of the Medicare eligibility age and means-testing of the system; it wasn’t just the “blended rate” proposal to reduce federal participation in Medicaid, which is still part of the discussion, if we believe Eric Cantor’s document of cuts.

On top of all of that, there was essentially a large tax cut, at least in relation to current law.

What you need to know is that both the fiscal commission and the White House’s April speech included two tax increases: the one they proposed, and the one they assumed. Over 10 years, the fiscal commission wanted to raise about $1.2 trillion and the White House sought about $750 billion. But both of them assumed that the Bush tax cuts for income over $250,000 would expire in 2012, netting them another $800 billion or so in revenue. So the total revenue in the Simpson-Bowles proposal was closer to $2 trillion, and Obama’s proposal was more like $1.5 trillion. Both of these were less than simply letting the Bush tax cuts expire — which would get you $3.8 trillion, and $4.6 trillion if you include the consequent reduction in interest payments — but they were significant.

What Obama offered Boehner was an opportunity to take the Bush tax cuts off the table. So though $800 billion in revenue sounds sizable, it’s only half as much in total revenue as the White House’s April proposal, two-fifths as much as Simpson-Bowles wanted, and one-fifth what we’d get if the Bush tax cuts expire next year.

None of the proposals from anyone – not from the Progressive Caucus, not from Kent Conrad’s Senate budget, which actually looks more like the CPC budget – actually raise taxes from the current baseline. The current baseline assumes expiration of the Bush tax cuts in December 2012. It also assumes that the budget bounces back into primary balance all by itself, through allowing the expiration of the Bush tax cuts, the AMT patch, the doc fix, and other temporary events. That may not be the best-looking budget going forward, but it’s one in primary balance as long as we start creating jobs somewhere along the line.

And this tool, the looming expiration of the Bush tax cuts, represents the only leverage Democrats have, the only thing they have that Republicans affirmatively want, in this whole debate. The Bush tax cuts, even at the time, were sold as a response to a surplus and not a permanent tax rate. But if Obama’s grand bargain would have gone through, the Bush tax cuts would have become permanent for everyone except for those at the very top. Of course, the rich profit disproportionately from ALL the Bush tax cuts – in a marginal tax rate system, they are rewarded from any tax cuts on the first $250,000 of income, too. In fact, those so-called “middle class” tax cuts are pretty regressive.

It’s possible, maybe even probable, that there would be no votes for such a plan on the Democratic side. I’m a little dubious. But it’s important to understand that, through this proposal, the President is saying that taxes must never be as high as during the oppressive Clinton era when we reduced poverty and created 23 million jobs. Here’s Matt Yglesias:

There are a few ways to interpret this series of events. One of them (about which more later) is simply that to an extent few realize, the Democratic Party has locked itself into a conceptual box around taxes, which is going to destroy progressive politics. Another is that a lot of the juice in the debt ceiling talks is less about what happens than about what people can make other people vote for. Republicans don’t just want to cut Medicare, they want Democrats to vote to cut Medicare and Democrats don’t just want more tax revenues, they want Republicans to vote for tax hikes. American political institutions create a lot of incentives for this kind of accountability-evading behavior.

I think this is pretty right, particularly the part about revenues. I mean, there is practically not one politician in the Democratic side willing to say that all the Bush tax cuts should expire. The Do Nothing strategy is still a lonely one.

David Dayen

David Dayen

2 Comments