Jonathan Chait at New York Magazine comes out with two negative takes on the seemingly emergent fiscal cliff deal, first “Why is Obama Caving on Taxes?” (link) and then “Obama’s Deal is Possibly Not a Terrible Deal” (link). He uses a Huffington Post report for his understanding (link) of the deal, which goes like this:
Under the framework, the Bush-era tax cuts would be extended permanently for individuals at $400,000 and joint filers at $450,000. A second Senate Democratic source familiar with the state of play confirmed those details. The top rate on ordinary income would go back to 39.6 percent and raise an estimated $370 billion in revenue over 10 years.
The same thresholds would be applied for capital gains and dividends, with the top rates in that case going up to 20 percent — a concession to Republicans (the rate on dividends was set to return to 39.6 percent) but not far from the president’s position during the campaign.
Left unaddressed, at the moment, are the $1.2 trillion in sequestration-related cuts that will be triggered on Jan. 1. The parties are arguing over how long to stave off the cuts, and whether and how to offset them
Chait thinks Obama “bargain[ed] away his strongest leverage,” which “will make the next rounds harder, and embolden Republicans further.”
If Chait’s concern is a protracted 2013 “debt-ceiling” debate, I concur. Any deal is a bad deal if it increases the chances for another standoff over the country’s perceived willingness to pay its bills. Given that the GOP’s responsibility is to contribute to decent self-governance, what the party did in 2o11 and intends to do in 2013 over the “debt ceiling” is highly irresponsible.
If Chait’s concern is the imminent spending cuts this deal doesn’t solve, I concur again.
More generally, I appreciate the way Chait consistently formulates his analyses within the theoretical framework of “negotiation,” which is a sociologically tenable way to think about how political interactions take place. Surprisingly few journalists really engage with what it means to call something a negotiation. Many ignore the meaning altogether. Using the negotiation framework allows Chait a picture of how Obama held the better hand, and yet is “caving.”
However, analyzing something as a negotiation requires having a good sense of the qualities of each hand. Here, I disagree with Chait’s conception of who is holding what. Chait does not adequately account for the coming debt-ceiling debate in the hand of the Republicans, who will unilaterally decide if we even have such a debate. Also, a total victory on the Bush taxes — say, as part of any “grand bargain” — would only come with roughly congruent spending cuts. This was not to be, largely because neither party wants to be the author of real, honest-to-goodness spending cuts. The larger the tax victory, the larger the spending cuts would have needed to be. The Republicans’ unwillingness to give the details behind its spending cut agenda largely kept Obama from being able to fully enforce his tax demands.
John Cassidy at The New Yorker, also employing a negotiations framework, (alas, he cites “game theory”), asks, “where did Obama’s leverage go?” (link). Cassidy’s answer is that as the “out-of-power party,” the GOP could afford to play politics, whereas Obama was forced to put the country first. One side acted according to interest, the other side as statesmen. Which sounds a bit self-serving, as Cassidy’s “side” was the one acting honorably.
Truth is, both sides acted in their own interests, and both sides can claim a bit of a victory here. Obama cut deeply into the Bush tax cuts, which he laid out as his priority, much to my chagrin. I think trading a full extension on the Bush tax-cuts for more revenue/plus significant short-term fiscal stimulus was the right play.
The Republican victory was for the spending cut issue to go forward without having to claim them as purely Republican-created. The Republicans want something like the Ryan Budget going forward, but they are now gun-shy about publicly admitting it. GOP actors with any access to real data now believe the Ryan Budget is politically toxic — they are right — and in front of national audiences like the three Romney-Obama debates and the fiscal cliff negotiations, any radical anti-government agenda is denied.
In the end, the stop-gap fiscal cliff deal described above by Huffington Post and here by National Journal is a cautious one on taxes (probably good), ignores the spending issue (probably bad), and makes a debt-ceiling standoff in 2013 more likely (empirically demonstrably bad).