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A Few Thoughts On the Compromise

1.  I'm enjoying the tantrum that many liberals are throwing.

2.  There is something weirdly hyperbolic about all this carrying on over extending the 35 percent top marginal income tax rate for two more years.  It isn't usually something people get that angry about.  If I thought that Bernie Sanders. Michael Lerner, and Keith Olbermann were serious about bringing down the short-term budget deficit, this hissy fit would make a little more sense, but even then not really.  They still support the deficit-financed middle class tax cuts and payroll tax holiday.  David Limbaugh argues that it is about a desire to get at the rich.  I don't think that is it.  A desire to see higher marginal tax rates on the rich might be a reason to oppose keeping the top marginal income tax rate at 35 percent rather than 39.9 percent but it doesn't begin to explain the current freakout.  I think a lot of this is about George W. Bush.  Repealing the "Bush tax cut" on the "rich" would have been a victory over Bush and one more step toward obliterating his economic legacy.  I wouldn't discount this kind of pettiness.  I remember a debate in 2004 where Howard Dean suggested repealing all of the Bush tax cuts.  The other Democrats reminded him that some of the tax cuts were actually quite popular even among Democrats.  Dean then suggested repealing all the Bush tax cuts and then re-passing some of them.  This isn't even about economics.  It is about pride and vengeance.  Now Bush has gotten the better of them again and worst of all Obama helped Bush make fools out of liberals one more time. 

3.  There is also a self-promoting, self-dramatizing, and principled explanation too.  As David Weigel points out, criticizing Obama in extravagant terms and threatening to support a primary challenge from the left brings more media attention to the left critique of the compromise and to to the people doing the critiquing/threatening.

4.  This tax cut extension/new round of economic stimulus won't break us of course, but there is something ominous about the fact that the bipartisan deficit commission reported last week, and this week we get a bipartisan bill that will increase the deficit.  I get the whole short-term weak economy vs. long-term thing entitlement crisis thing, but I don't see much reason to feel good about the long-term either.  

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Discussions - 14 Comments

I really don't like the phrase "extending the tax cuts." What is really being talked about is extending the current (and for the last 10 years) income tax brackets and marginal tax rates (and inheritance tax provisions, if you want to include them). As such, they don't contribute to the deficit; the current income tax structure is one of the bases from which the deficit is calculated.

What does contribute to the deficit is the entirely unjustified extension of unemployment benefits and the other "stimulus" tax provisions that have demonstrated their ineffectiveness in improving the economy since they were introduced.

I would vote down the "compromise" in favor of an unlimited extension of the current income tax (and inheritance tax) provisions. If the Democrats stand in the way of that, then reintroduce it under a Republican majority in the House after the first of the year and after the first paychecks have come through with reduced take home pay and a large percentage of those who do not currently pay income tax back on the tax roles with wages withheld. Margaret Thatcher would have called this, if memory serves, a "short, sharp shock" and it would be courtesy of the Democrat's class warfare fixation.

Then address the unemployment benefits and other provisions in separate bills.

Hear! Hear!

Why doesn't someone on the R side ask the Ds: Do you think most wealthy people made their fortunes through hard, disciplined work requiring talent or that they stole it, worked the system, or acquired ill-gotten gains? Which is it? Taxation and other "economic" issues are at bottom moral ones. Rs don't seem to believe it either, the way they often argue.

In Tuesday's online Washington Post, I happened to read Katrina vanden Heuvel's take on the tax deal. When I got to the middle of her piece, I just about had to clean the coffee off my display, when I read:

"The $60 billion each year in Bush tax cuts for the richest Americans could pay for universal preschool for America's children, or tuition and board for half of America's college students."

That right there encapsulates the thinking of the so-called Progressive Movement. Instead of talking about how the new cash flow could be used to reduce debt, or to help pay for existing programs, the first thought is to use the money for a brand new entitlement program.

It's like a struggling homeowner who is far behind on the mortgage and other bills, and close to foreclosure and bankruptcy. Nonetheless, when they get a modest raise in their salary, the immediate reaction is to go out and buy a brand new car (on credit, of course).

Jim, I suppose the phrase "extending the temporary tax rates first enacted (some of them) in 2001" would be more precise." I do think it is weird that we talk about tax rates enacted almost ten years ago as temporary, but then again they were legally...temporary. That doesn't mean extending them or even making them permanent is a bad idea. I believe that the CBO calculates the baseline budget from existing law so extending the Bush tax cuts (or however you want to phrase it), even the middle-class tax cuts that Obama supports, would be a change that increases the projected deficit upwards - as would pretty much everything else in the bill. That doesn't upset me all that much since the CBO baseline projection is rooted in all kinds of fantasies (like a sudden and persistent cut in Medicare reimbursements that Congress in NOT going to allow.) But there is something disturbing in the decision of the Obama administration and the congressional Republican leaders to compromise by adding together the two parties' deficit expanding ideas. I think the compromise can be defended on grounds of both policy and politics as a short-term measure, but the timing (right after the deficit commission report seemed ironic.

I think that if Republicans forced the expiration of the middle-class (and not just middle-class) tax cuts in order to prevent an extension of unemployment benefits, I'm not sure that the politics of it all would have favored the Republicans. That doesn't necessarily mean they shouldn't have done just that. I'm agnostic on the extension of unemployment insurance benefits. Megan McArdle seems to be familiar with the literature on the impact of extended unemployment insurance on labor force participation and she is in favor of the extension. I think that public rhetoric on this issue should recognize the reality of a trade off. Extending unemployment benefits probably is causing some nonzero number of people to put off looking for a job, and there really are people looking for a job and unable to find one who will be hurt by a failure to extend unemployment benefits. I think that anyone denying either of these realities comes off as different kinds of naive or ideologically self-interested.

Ken, I think it depends on the Democrat to whom the point is directed. Some Democrats favor higher taxes on high earners because of resentment of high earners or a general preference for more economic equality. Some argue that higher marginal tax rates for high earners are a way to get money for public services in a way that will least impact the living standards of those paying the taxes (including the high earners) and with the least impact on the economy. The latter group might be wrong in their assumptions, but given those assumptions they could favor higher tax rates on high earners and still assume that the wealth of the wealthy is as earned as most anybody else's.

DaveK, yes. One of the disgusting/amusing elements of the left's freakout is that these same people would gladly spend twice the revenue foregone by the extension of the tax cuts on high earners (about 75 billion) on their own preferred projects.

Got to disagree, Pete. This isn't Bush Hatred Syndrome, it's "soak the rich syndrome." The fact is, these people hate rich people because they hate capitalism. They are always singling out well-off people for "special" consideration, and that's because they need a scapegoat to hate on. The Left, far from being caring and sensitive, is actually a massive group of people united by hatred. The reason we are getting these crazy responses to the tax compromise is that it directly assaults that which unites the Democrats. It's very symbolic to them, and to have their boy do this to them is (to them) pure betrayal.

The relatively clean deal announced by Obama and McConnell was, on balance, a reasonable compromise. Yet now the House appears ready to add on doodads that make a mockery of the most garish Christmas displays imaginable.

I wonder if McConnell and his GOP colleagues have the spine to walk away from the deal. At some point, the tax pork will offset enough of the benefits of the rate extensions that it's probably worth the risk to let the rates go up for a few weeks, allow the economy to suffer the short-term damage, and let the new Congress take this plan on again.

Redwald, You are certainly right that resentment against the rich has something to do with it . There was certainly some cartoonish resentment against the rich in Bernie Sanders' speech today (though some of the more venomous deal opponents like Olbermann would qualify as rich), but I don't think it explains the intensity of the liberal reaction against the deal. There are no doubt many Americans who would prefer, as a matter of both policy and morality, to have the top marginal income tax rate be set above 35 percent. Would we be getting such an intense reaction to the government keeping the top marginal income tax rate at 35 percent rather than 39.9 percent for two more years if this was not also extending the "Bush tax cuts for the rich?"

I think this is more fundamental than Bush hatred. I watched them do this for decades, and they seem to get worse every year. This is why I favor a flat tax. Everyone pays the same rate, but of course 10% or 15% of millions will be lots more than 10% or 15% of $50k. The rich are still paying for their "opportunities" but we scuttle all this punitive nonsense about punishing the successful.

This is why I get so angry with these Libertarian retards who keep pushing the "fair tax." It's regressive, it's hard to administer, and it's conspicuous (indeed, I think "fair taxers" are actually trying to achieve something beyond fairness here). Any party that actually pushes it and, God forbid, passes it will go the way of the dodo.

and this week we get a bipartisan bill that will increase the deficit.

Which is an indication that just about every component of the political spectrum is chock-a-block with people who are unfit to govern. This country seems in the earlier stages of two cases of a violent political grippe with distinct social sectors in irreconcilable positions. The history of Spain ca. 1933 and the history of Argentina after 1928 and Uruguay after 1955 should trouble us.

As a frustrated progressive, I am excited to see a spinal cord emerge among Democratic reps. Perhaps if this were a natural phenomenon the November results would have been different. Liberal voters lost much faith in the Democratic majority who failed to show any stones for two years, and as a result many progressives failed to show at the polls. I sadly expect this to backfire as their weak knees win out...but I can still have Hope can't I??

AD, this deal (and the reversal of rhetoric regarding the deficit) has left me in no mood to argue. I do think that there are forces within the Republican Party, conservative politics, and maybe even some Democrats (though the last with almost no popular following) who can help build a better politics. I'm not familiar with Uruguay, but I don't expect either a full scale civil war with warring rival governments each controlling large tracts of national territory (like in Spain) or a succession of military governments like in Argentina.

I think it is quite possible that we will have economic policies that produce a large relative decline in American living standards somewhat similar to the situation of Argentina in the post-1928 period along with a party system with two more-or-less equally statist and clientist parties that are nominally of the right or left. I wouldn't bet against that outcome.

Argentina was, about 80% of the time, governed by its elected officials during the period running from 1928 to 1955. It was after a generation of escalating stupidity that (not very capable) military government came to be the mode. Both Argentina and Uruguay were suffering from ill-digested changes in the international division of labor and the civilians in both locales responded in ways that exacerbated each country's economic maladies. Our politicians are so feckless and self-involved, I can readily see them doing that. The fact that the political process in our national crisis threw up someone as inadequate as Barack Obama, who was compelled to govern with the co-operation of someone as crooked as Barney Frank (making use of megacrook Rahm Emmanuel as his consigliere) leaves me not very optimistic.

Yeah, but that 20% is really something. I agree that it is quite possible that the US could adopt a series of policies that cause a sharp and sustained relative decline in American living standards and add a huge amount of corruption to America's economy and political culture.

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