Fiscal Cliff Negotiations—So Far, So Good

Here is President Obama’s initial fiscal-cliff-avoidance proposal he reportedly offered to Republicans:

  • $1.6 trillion in new revenue (including restoration of top marginal rates, higher taxes on capital gains and a return to the 2009-level estate tax, which itself is way too generous but not as bad as today’s)
  • $400 billion [correction:] $600 billion in additional entitlement cuts, which when added to the almost $1 trillion discretionary spending cuts already a part of law and a similar amount of “savings” from shutting down the two wars, makes well over $2 trillion in total spending cuts
  • About $200 million in additional stimulus, including an extension of unemployment benefits (which the nonpartisan Congressional Budget Office acknowledges would add 300,000 jobs) and an extension of the payroll tax holiday and some money to invest in infrastructure improvements as well as some money to help still-stressing homeowners modify their mortgages
  • A delay in those pesky automatic spending cuts to Defense and entitlements for one year
  • Ending congressional approval of raising the debt ceiling, a silly technical requirement that in Republican hands has become fiscally dangerous

Here is how Huff Po’s Ryan Grim reported the Republican summary of Obama’s proposal:

The proposal is based on a two-step plan that would decouple the high-end tax and capital gains rates from the middle-class rates, extending only those for the middle class. It would revert estate taxes to their higher 2009 level, and raise an additional $600 billion in taxes elsewhere, according to the GOP summary. It then proposes tax reform required to raise at least as much as the tax hikes, and entitlement reform that would trim $400 billion from the programs.

Here’s how Fox’s favorite conservative pundit, Charles Krauthammer, reacted, uh, overreacted, to the President’s proposal:

It’s not just a bad deal, this is really an insulting deal… Robert E. Lee was offered easier terms at Appomattox and he lost the Civil War. The Democrats won by 3% of the vote and they did not hold the House. Republicans won the House. So this is not exactly unconditional surrender, but that’s what the administration is asking of Republicans.

There not only are no cuts in this, there’s an increase in new spending with a stimulus – this is almost unheard of. I mean, what do they expect? They obviously expect the Republicans will cave on everything. I think Republican ought to simply walk away.

Here is that other intellectual of the Republican Party, Rush Limbaugh, and his reaction on Thursday:

walk away rush

This is, unfortunately, one time that we can count on Republicans not taking Limbaugh’s advice. They won’t walk away. Their greasy fingerprints—the grease courtesy of their fat-cat donors—will be all over what happens, either a deal or an adventure into short-term fiscal uncertainty.

Finally, here is Ezra Klein’s analysis of Obama’s proposal that should make liberals breathe a little—I said a little—easier, as we worry about our side’s negotiating prowess:

We’re seeing two things here. One is that the negotiations aren’t going well. When one side begins leaking the other side’s proposals, that’s typically a bad sign. The other is that Republicans are frustrated at the new Obama they’re facing: The Obama who refuses to negotiate with himself.

That’s what you’re really seeing in this “proposal.” Previously, Obama’s pattern had been to offer plans that roughly tracked where he thought the compromise should end up. The White House’s belief was that by being solicitous in their policy proposals, they would win goodwill on the other side, and even if they didn’t, the media would side with them, realizing they’d sought compromise and been rebuffed. They don’t believe that anymore.

Perhaps the key lesson the White House took from the last couple of years is this: Don’t negotiate with yourself. If Republicans want to cut Medicare, let them propose the cuts. If they want to raise revenue through tax reform, let them identify the deductions. If they want deeper cuts in discretionary spending, let them settle on a number. And, above all, if they don’t like the White House’s preferred policies, let them propose their own. That way, if the White House eventually does give in and agree to some of their demands, Republicans will feel like they got one over on the president. A compromise isn’t measured by what you offer, it’s measured by what the other side feels they made you concede.

The GOP is right: This isn’t a serious proposal. But it’s not evidence that Obama isn’t serious. He’s very serious about not negotiating with himself, and his opening bid proves it. Now that they’ve leaked his initial offer, the next question is obvious: What’s their offer?

4 Comments

  1. ansonburlingame

     /  November 30, 2012

    This is not an argumentative comment, just a couple of questions.

    1. Do you believe it is good for the country to pass this “package” as stated, no changes?

    2. Note, included in the “package” is legislation for Congress to abrogate its Constitutional authority to authorize borrowing money. The “package” I think says pass a law allowing the Executive Branch to extend the debt limit UNLESS 2/3 of Congress objects. Objecting to borrowing is not the same as authorizing borrowing (or is it?),

    I also note the recollection that a little over a year ago both sides were at least “talking” about $3 in cuts to every $1 in new taxes before talks broke down. Now we see $4 in taxes and $1 in cuts . Carry that idea to eliminating the deficit at say $1 Trillion per year. That means $800 Billion in new taxes (per year or $8 Trillion over ten years) and $200 Billion in spending cuts per year (or $2 Trillion over ten years).

    Anson

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    • Anson,

      Let me take your questions in order:

      1. Yes.

      2. You are incorrect to say that the package contains “legislation for Congress to abrogate its Constitutional authority to authorize borrowing money.” It does no such a thing. And the 2/3 rule is not now part of Obama’s offer. It is simply to completely do away with the ridiculous debt ceiling approval charade, as Alan Greenspan and others have urged. Congress, via the Constitution, authorizes and appropriates and by that fact it implicitly authorizes the Treasury to draw down funds or borrow money to accomplish its will. That should be the end of it. If Congress doesn’t want Treasury to borrow money, it should have the collective guts to pass legislation reducing expenditures. Period.

      3. I don’t understand your math, Anson. I’m not sure where you get $4 in taxes against $1 in cuts. I did revise the above piece to reflect an inaccurate amount for entitlement cuts. It is really $600 billion, but that doesn’t substantially affect your point and your seemingly otherworldly arithmetic. The offer is to get $1.6 trillion in new revenue while offering (some were already in the mix) about $2.6 trillion in budget savings. Now, you might quibble with including previous spending cuts and savings from the wars (which it appears you do), but that is all subject to negotiation and not something one can wipe out a priori.

      Duane

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  2. Good analysis, Duane, and I agree with it, particularly about the apparent new Democratic philosophy of not “negotiating with (one’s) self”. The strategy of applying political pressure in the wake of the election results makes a lot of sense, even though we are talking only about a spread of 6%. The bottom line I think can be summed up as 47%, a number that seems to have acquired permanence in the mind of the body politic. In my opinion this vital political insight weakens the basic and demonstrably false talking point the right continually throws out, that asking the top 2% to contribute more would weaken businesses. At some point, probably in January or February, after the government has gone over the fiscal curb and the lower paychecks have started to come in, the Tea Party will realize that their fingerprints are indelibly on the mess. Who knows, maybe some of the smarter ones will even see that coming – I’m hearing some have already and are bailing on Norquist.

    I must add that I do have reservations when I hear Harry Reid and others waxing stubborn about not touching entitlements in any way, however. There is truth in arguments that they need to be made self-supporting and properly funded for the future. If both sides are smart they will retire behind closed doors where the sausage is made and emerge with sensible and graduated reforms.

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    • Jim,

      Thanks for the link to that article, which makes a point all should know:

      In reality, only a tiny fraction — roughly 3 percent — of taxpayers who report any form of business income on their tax returns earn enough to be impacted by the tax rates for take-home income over $250,000. What’s more, this small fraction includes hedge fund managers, corporate lawyers, and K Street lobbyists — who most Americans don’t think of as small businesses. So the number of real small businesses taking home more than $250,000 is even lower.

      People should also know that we are talking about everyone receiving tax relief up to $250,000. The additional tax is on amounts exceeding that. All get the same tax cut, is the point.

      The author’s point about focusing on ways to “bring more customers in” to small businesses is exactly right. We are a consumer driven economy these days, and it would help if we, as he writes:

      Rebuild our crumbling roads and bridges, stop cutting education, quit laying off teachers and first responders, and extend the Bush tax cut for 98 percent of Americans — that’s the way to bring more customers into our businesses. But if we take the nearly $1 trillion we would raise from ending the extra Bush tax cuts for income over $250,000 and hand it right back to the top 2 percent, we won’t have the resources to do these things.

      I don’t advocate extending even the 98% tax cuts forever. In better times, we have to ask all people for a little more, so we don’t end up like we did under the Bush administration: in need of stimulus money but deep in debt.

      I think we will differ a tiny bit on entitlement reform, depending on what you mean by “self-supporting and properly funded for the future.” We need to get ourselves over the baby-boom retirement hump, that’s for sure. That may not mean, however, completely making the programs self-supporting in this next generation. We may have to ask people with means (and determining who “people with means” are will, admittedly, be the tricky part; but it is a high bar in my opinion) to keep paying into the social insurance systems without getting all they are now currently entitled to, but I am not one who believes we can, or should, ask people without much means to shoulder the burden through benefit cuts, nor ask them to wait until they are 68 or older to get the benefits in the first place.

      We are a wealthy country and some part of that wealth (some part independent of what beneficiaries themselves pay in ) needs to be directed toward those who have worked hard, served the country well, but who weren’t able to earn enough to save a nest egg to live comfortably in their old age. I think we need to communicate to all our young people that America is not a place where you have to fear getting old just because the best job you could get was, say, working at Walmart or on some overworked, underpaid assembly line or, God forbid, even behind a desk somewhere. And we won’t communicate such “security” to them if they see their parents and grandparents, or any parents and grandparents, struggling to pay for health care when they are sick and past the point of being insurable.

      I will say it again, as you and I have discussed before, the real solution here is in real health care reform: let’s socialize the health care system and go from there.

      Duane

       

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