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Domestic Policy in 2011: Republicans Made Strides on Long-Term Goals

Wee Ezra (photo by Emily Thorson)

With the passage of the payroll tax/UI stopgap, that basically closes the books on 2011 from a legislative standpoint. And in many of the year-end reviews, I gather you’re going to see some retroactive praise for President Obama, and how his Administration was able to hold off legislative gains from the other side. An exemplar of this genre comes from Ezra Klein in a post entitled “Obama’s surprisingly good 2011.”

Thursday’s payroll-tax deal concludes the final of the four major negotiations of 2011. The first was in February, when Congress needed to fund the government or risk a shutdown. The next was in August, when Congress needed to raise the debt ceiling. Then there was the supercommittee. And, then, finally, the expiration of the payroll tax cut and unemployment insurance.

These negotiations were ugly. Their endgames were alarming displays of Washington’s polarization and dysfunction. They drove the approval ratings of both President Obama and the Congress to new lows. But, in terms of the substantive concessions the two parties have won for themselves, the fact of the matter is that the White House begins 2012 in a very, very strong position. Much stronger than most would have expected at the beginning of this year. And not always through any fault of their own.

The difficulty in figuring this one out comes with the “compared to what” counter-factual. Klein is arguing in relative terms, saying that Obama and his team did better than we should have expected on January 1, 2011, given the makeup of Congress and the multiple negotiations ahead. And that may be right. But all too often, this gets transformed into a more unilateralist view, like “Obama played chess and the Republicans got nothing.” That is just factually untrue.

So, let’s go over these four big negotiations one by one. [cont’d.]First up is government funding for FY2011, which ended with an April deal on appropriations. Klein says that this deal wound up a big nothingburger, with the $38.5 billion in cuts negotiated winding up “more like $20-$25 billion, with less than $400 million falling in 2011.” The claim of a limited impact is just factually untrue. The Center for American Progress, typically seen as a defender of the President, did a much-overlooked study in October looking at the April budget deal. They found that the deal cost the economy 370,000 jobs. It’s impossible to call that impact limited. We’re talking about a deal that was only for six months of the fiscal year, so that translates to an impact of a statistically significant 60,000 jobs a month. Playing with numbers on outlays is a nice parlor game, but it’s harder to explain away this loss of jobs.

(UPDATE: I’ve had some email back and forths on this. Some of Lilly’s numbers were based on House Republican boasts about $35 billion in cuts coming to fruition. But he also peppered his report with real-world reports about layoffs of public safety officers, nuclear site cleanup specialists and construction workers. I grant that Lilly’s numbers may represent an outer bound, but I don’t think you can say that the 2011 cuts had no effect. Outlays doesn’t tell the whole story. State and local officials base their budgeting on expectations, not raw numbers.)

But it’s worse than that. Talking about the specific 2011 outlays neglects that the FY2011 deal set the baseline on discretionary spending for the next ten years. Those lowered baselines became the starting point for the discretionary cuts in the debt limit deal. That deal initiated a spending cap on discretionary spending to last the next ten years, for a total of $900 billion in cuts. That will roll back fiscal policy in a very real way; though not as high-profile as, say, cuts to Social Security or Medicare, it constrains discretionary spending at an extremely low level, a lower percentage of GDP than the Eisenhower era. That’s a major policy loss for liberals who favor a more activist government. Now, many will say that the spending cap can simply be ignored by future Congresses. So far, we know that the FY2012 budget adhered to the spending cap. And the President certainly supports it. If he’s re-elected, you can expect this spending cap to dominate through Fiscal Year 2017. If he isn’t, the spending cap is probably the best-case scenario.

What’s more, Klein acknowledges that “the debt-ceiling debate was a mess, and it probably did real damage to the economy.” That has a real-world impact, of course. And it all could have been avoided by increasing the debt limit back at the end of 2010 when Democrats held Congress. It could have been put into the deal for the Bush tax cuts. Harry Reid himself said that he’d rather force Republicans to take responsibility for the debt limit. We know how that turned out.

And it goes without saying that the President would have favored a grand bargain, which didn’t happen because John Boehner’s caucus couldn’t abide by tax increases.

So now there’s the Super Committee. This failed, predictably, and in exchange we get the trigger, which will cut $1.2 trillion more from the budget, half from defense and half from discretionary spending, with programs for the poor spared. There will also be a 2% across-the-board cut for Medicare reimbursement. I’m fine with the defense cuts, but you’re talking about cuts below that spending cap instituted, through a hatchet of automatic sequestration. It will not be possible to spare key programs like education and science and housing and regulatory agencies with all of those cuts. It just won’t.

Klein praises the “dual-trigger” in the form of the Bush tax cuts, which expire at the end of 2012. This of course had nothing to do with policymaking in 2011, so I don’t really see how the President gets credit for it. Plus, he’s made it clear that he doesn’t want to let all the Bush tax cuts expire, saving $3.6 trillion to the budget’s bottom line. He just wants the tax cuts “for the rich” to expire, on income above $250,000 a year. We’ll see how this goes next year, but it’s completely undecided.

Finally, there’s the payroll tax and UI. And while I supported the deal in general terms, it’s unquestionable that it represented a tax-side stimulus reinforcing the conservative theory of government, that tax cuts can cure what ails the economy always and forever. The needle was not moved at all on direct government spending to create jobs.

Klein concludes by saying that “in 2011, there was no government shutdown, no default on the debt, and no contractionary spending cuts passed for this year or next year.” This is mostly true, but it leaves out a lot. You have to add the changed baseline, the spending cap for 2012-2021, and some other policy measures achieved by Republicans. They’ve also clawed back exchange subsidies from the health care law twice, prevented DC abortion funding and needle exchange funding, as well several other riders and influences on some of the more head-scratching Administration actions like punting essential benefits packages to the states and canceling ozone regulations. Just recently they passed a bill that allows government contractors to more easily cheat on their taxes in exchange for fixing a “glitch” that would have allowed early retirees to access cheap Medicaid insurance. Philosophically, they prevented any additional spending to boost the economy, except mostly for tax-based solutions. So maybe Republicans haven’t advanced their policy too much but their actions have had a definite effect.

Again, this is a “compared to what” scenario. If you thought the nation was doomed at the beginning of 2011, maybe you think that the Administration made out all right. If you think that they still held the Senate and the White House and should have been able to hold the line, your opinion is either mixed or disappointed. And as Klein acknowledges, this is not actually the way the White House wanted things to turn out. They wanted a big deficit deal, including safety net cuts.

So your perspective can color your opinion. What I cannot abide is saying that Obama “outplayed” Republicans or that the Tea Party Congress “did nothing” on policy in 2011. That’s at odds with the facts. The constraints on domestic policy put in place by this Congress will resonate for a long time.

UPDATE: Merrill Goozner has some good thoughts on this, including this point, which I made without the hard numbers:

Fiscal austerity. Government spending on discretionary programs has been cut substantially. According to an analysis by Bipartisan Policy Center budget experts, the 2012 budget, in inflation-adjusted dollars, will have eliminated all residues from the 2009 stimulus package and reduce spending in slightly below 2008 – the year before the recession and the level sought in the pledge.

Republicans came in wanting to cut spending to 2008 levels. They accomplished that.

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Domestic Policy in 2011: Republicans Made Strides on Long-Term Goals

With the passage of the payroll tax/UI stopgap, that basically closes the books on 2011 from a legislative standpoint. And in many of the year-end reviews, I gather you’re going to see some retroactive praise for President Obama, and how his Administration was able to hold off legislative gains from the other side. An exemplar of this genre comes from Ezra Klein in a post entitled “Obama’s surprisingly good 2011.”

Thursday’s payroll-tax deal concludes the final of the four major negotiations of 2011. The first was in February, when Congress needed to fund the government or risk a shutdown. The next was in August, when Congress needed to raise the debt ceiling. Then there was the supercommittee. And, then, finally, the expiration of the payroll tax cut and unemployment insurance.

These negotiations were ugly. Their endgames were alarming displays of Washington’s polarization and dysfunction. They drove the approval ratings of both President Obama and the Congress to new lows. But, in terms of the substantive concessions the two parties have won for themselves, the fact of the matter is that the White House begins 2012 in a very, very strong position. Much stronger than most would have expected at the beginning of this year. And not always through any fault of their own.

The difficulty in figuring this one out comes with the “compared to what” counter-factual. Klein is arguing in relative terms, saying that Obama and his team did better than we should have expected on January 1, 2011, given the makeup of Congress and the multiple negotiations ahead. And that may be right. But all too often, this gets transformed into a more unilateralist view, like “Obama played chess and the Republicans got nothing.” That is just factually untrue.

So, let’s go over these four big negotiations one by one. First up is government funding for FY2011, which ended with an April deal on appropriations. Klein says that this deal wound up a big nothingburger, with the $38.5 billion in cuts negotiated winding up “more like $20-$25 billion, with less than $400 million falling in 2011.” The claim of a limited impact is just factually untrue. The Center for American Progress, typically seen as a defender of the President, did a much-overlooked study in October looking at the April budget deal. They found that the deal cost the economy 370,000 jobs. It’s impossible to call that impact limited. We’re talking about a deal that was only for six months of the fiscal year, so that translates to an impact of a statistically significant 60,000 jobs a month. Playing with numbers on outlays is a nice parlor game, but it’s harder to explain away this loss of jobs.

(UPDATE: I’ve had some email back and forths on this. Some of Lilly’s numbers were based on House Republican boasts about $35 billion in cuts coming to fruition. But he also peppered his report with real-world reports about layoffs of public safety officers, nuclear site cleanup specialists and construction workers. I grant that Lilly’s numbers may represent an outer bound, but I don’t think you can say that the 2011 cuts had no effect. Outlays doesn’t tell the whole story. State and local officials base their budgeting on expectations, not raw numbers.)

But it’s worse than that. Talking about the specific 2011 outlays neglects that the FY2011 deal set the baseline on discretionary spending for the next ten years. Those lowered baselines became the starting point for the discretionary cuts in the debt limit deal. That deal initiated a spending cap on discretionary spending to last the next ten years, for a total of $900 billion in cuts. That will roll back fiscal policy in a very real way; though not as high-profile as, say, cuts to Social Security or Medicare, it constrains discretionary spending at an extremely low level, a lower percentage of GDP than the Eisenhower era. That’s a major policy loss for liberals who favor a more activist government. Now, many will say that the spending cap can simply be ignored by future Congresses. So far, we know that the FY2012 budget adhered to the spending cap. And the President certainly supports it. If he’s re-elected, you can expect this spending cap to dominate through Fiscal Year 2017. If he isn’t, the spending cap is probably the best-case scenario.

What’s more, Klein acknowledges that “the debt-ceiling debate was a mess, and it probably did real damage to the economy.” That has a real-world impact, of course. And it all could have been avoided by increasing the debt limit back at the end of 2010 when Democrats held Congress. It could have been put into the deal for the Bush tax cuts. Harry Reid himself said that he’d rather force Republicans to take responsibility for the debt limit. We know how that turned out.

And it goes without saying that the President would have favored a grand bargain, which didn’t happen because John Boehner’s caucus couldn’t abide by tax increases.

So now there’s the Super Committee. This failed, predictably, and in exchange we get the trigger, which will cut $1.2 trillion more from the budget, half from defense and half from discretionary spending, with programs for the poor spared. There will also be a 2% across-the-board cut for Medicare reimbursement. I’m fine with the defense cuts, but you’re talking about cuts below that spending cap instituted, through a hatchet of automatic sequestration. It will not be possible to spare key programs like education and science and housing and regulatory agencies with all of those cuts. It just won’t.

Klein praises the “dual-trigger” in the form of the Bush tax cuts, which expire at the end of 2012. This of course had nothing to do with policymaking in 2011, so I don’t really see how the President gets credit for it. Plus, he’s made it clear that he doesn’t want to let all the Bush tax cuts expire, saving $3.6 trillion to the budget’s bottom line. He just wants the tax cuts “for the rich” to expire, on income above $250,000 a year. We’ll see how this goes next year, but it’s completely undecided.

Finally, there’s the payroll tax and UI. And while I supported the deal in general terms, it’s unquestionable that it represented a tax-side stimulus reinforcing the conservative theory of government, that tax cuts can cure what ails the economy always and forever. The needle was not moved at all on direct government spending to create jobs.

Klein concludes by saying that “in 2011, there was no government shutdown, no default on the debt, and no contractionary spending cuts passed for this year or next year.” This is mostly true, but it leaves out a lot. You have to add the changed baseline, the spending cap for 2012-2021, and some other policy measures achieved by Republicans. They’ve also clawed back exchange subsidies from the health care law twice, prevented DC abortion funding and needle exchange funding, as well several other riders and influences on some of the more head-scratching Administration actions like punting essential benefits packages to the states and canceling ozone regulations. Just recently they passed a bill that allows government contractors to more easily cheat on their taxes in exchange for fixing a “glitch” that would have allowed early retirees to access cheap Medicaid insurance. Philosophically, they prevented any additional spending to boost the economy, except mostly for tax-based solutions. So maybe Republicans haven’t advanced their policy too much but their actions have had a definite effect.

Again, this is a “compared to what” scenario. If you thought the nation was doomed at the beginning of 2011, maybe you think that the Administration made out all right. If you think that they still held the Senate and the White House and should have been able to hold the line, your opinion is either mixed or disappointed. And as Klein acknowledges, this is not actually the way the White House wanted things to turn out. They wanted a big deficit deal, including safety net cuts.

So your perspective can color your opinion. What I cannot abide is saying that Obama “outplayed” Republicans or that the Tea Party Congress “did nothing” on policy in 2011. That’s at odds with the facts. The constraints on domestic policy put in place by this Congress will resonate for a long time.

UPDATE: Merrill Goozner has some good thoughts on this, including this point, which I made without the hard numbers:

Fiscal austerity. Government spending on discretionary programs has been cut substantially. According to an analysis by Bipartisan Policy Center budget experts, the 2012 budget, in inflation-adjusted dollars, will have eliminated all residues from the 2009 stimulus package and reduce spending in slightly below 2008 – the year before the recession and the level sought in the pledge.

Republicans came in wanting to cut spending to 2008 levels. They accomplished that.

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David Dayen

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