I was going to publish this earlier, but held back with the news that the House GOP may blow the whole thing up.  However, after Markos's new front page diary where he states "The ONLY leverage Democrats have in this fight is tax rates," I feel like this is worth posting:

There is a lot of outrage on our side for "giving up leverage" and not tackling all of the major fiscal issues facing us, like the debt ceiling and sequestration, and instead focusing mainly on the tax cuts portion of the deal.  Here's what I don't understand:  For the last month, isn't this exactly what our side has been advocating for?

Post-thanksgiving, those of us on the left, from the president, to labor, to progressive organizations, and this website, had all been advocating for Congress to "extend the middle class tax cuts now." The President used the bully pulpit to call for the House to vote on the Senate bill to extend the Bush tax cuts for those making $250k or less. Nancy Pelosi tried to force a discharge petition through the House to force a vote.  We were all asked to sign petitions and call our Congressperson to demand that taxes for the middle class be extended first, outside of the framework of the rest of the deal.

The logic for that was simple.  If we extend the middle class tax cuts, two things are accomplished: 1. We take a significant part of the cliff worries off the table, which is that there were going to be major tax raises on the middle class and the poor.  2.  We gain leverage because we just got one of our major priorities accomplished, which was to raise tax rates on the rich without having to deal with anything else in the deal first.

Both of these things gave us some protection if we went over the sequestration cliff, since it wouldn't be the big combination of factors that could push us into recession.

Now, as a side note, keep in mind that the Senate bill we were asking the House to vote on was only a one year extension of the middle class tax cuts. So instead of making the rates permanent, we would have kicked the can down the road till the end of this year and had to deal with more drama all over again.

Flash forward to yesterday: a deal emerged between the Vice President and Senate Republicans to handle part of the fiscal cliff, particularly on taxes, outside of dealing with the bigger issues.  What did this deal include?  We did give up one major concession, which is to increase the Bush Tax cuts for the first $450k of income instead of 250k income that we would have gotten under the Senate bill we've all been pushing.  But we also got a heck of a lot of other stuff in return.

We extended unemployment benefits for a year without having to give an offset, we extended research and development tax credits for things like wind energy another year, while extending stimulus tax credits for lower income families another five.  We also got the Medicare doc fix patched, so reimbursements don't get cut by 27%, the AMT patched, oh yeah, a freaking FARM BILL EXTENSION PASSED (which I have heard very few people mention, but is as huge a part of this deal as anything else).

So in order to get everything mentioned in the last paragraph, we compromised on the tax rates.  How much did we really give up in terms of actual revenue?  The answer is, not that much.

Again, the Senate middle class tax cut bill was only for a year, so it would have generated less revenue in an apples to oranges comparison. Let's make it an apple to apple comparison, and we would have extended them permanently. That would have generated about $700b in revenue over 10 years.  How much did we end up getting in the tax cut deal?  About $600b. So we ended up getting 85% of the original revenue we were aiming for.

Say what you want, but getting 85% of your original target in any negotiation where you don't hold all the cards (and despite what some may think, we don't.  We don't control one of the three chambers, and until we fix the filibuster, we don't have full control over the second), is pretty damned good.

So now that we have this deal in place, everyone has changed their tune.  Extending the middle class tax cuts on their own went from being our goal to being a bad thing.  It went from something that strengthens our hand to something that weakens it? How and when exactly did this happen?  Are you really going to tell me because we get 15% less revenue than we originally wanted that it went from a great idea to a bad idea?

We still have to deal with sequester.  We still have to deal with debt ceiling. We were still going to have to deal with those even if we passed the Senate middle class tax cut bill.  

These are things we are going to have to deal with, but in whatever deal we make, it's also going to be an opportunity to raise more revenues.  

No one knows exactly how those negotiations are going to go, but the blueprint laid out in the mini-sequester deal was a pretty good one.  It called for reducing the sequester by 50% new revenue, 25% defense cuts and 25% domestic spending. That's a pretty good blueprint moving forward.  The President backed up this blueprint by holding that press conference before the vote letting Republicans know that if they vote for this deal, it's not all she wrote on revenues, and that 1:1 is the ratio he expects going forward on deficit reduction.

Many of you here believe the President will cave (which for some appears to mean not getting 100% of everything he asked for). Maybe he will, maybe he won't. My money is on getting most, but not all, of what he asks for going forward, but no one really knows.  But conceding defeat before those negotiations even begin is really crappy political strategy.

I'm not saying the debt ceiling/sequester fight will be easy.  It will be another shit show, going to the 11th hour, taking our country to the brink of default.  But guess what? Be prepared for a lot of those over the next two years that the lunatics are still in charge of the House of Representatives.  We're going to have government shutdown threats, more farm bill fights, and more fights on anything where the Republicans think they can use the well-being of the American people as a bargaining chip.

All this could be for naught if the Republicans go through with blowing up the deal. But if we get the deal we cut in the Senate, we are ahead going into the second quarter of a game with a lot left to play.  Taking care of the tax cuts first was what we have been advocating for all along, and we should celebrate if it gets taken care of, not mourn it.

4:36 PM PT: Thank you all for putting this on the rec list. I appreciate all of the comments, even those that disagree with me.  I wanted to respond to one area of disagreement (I'll elaborate on this in a diary tomorrow), which is those that are still insisting that without tax cuts, we have no leverage.  I have to say that I don't believe that's true.  The defense cuts in the sequestration is very much leverage.  I would venture to say that Republicans care almost as much about those as they do the tax rates for the rich.  They hate the idea of those cuts so much that they are attempting to amend something which should be a conservatives wet dream: Drastic spending cuts with no new revenue.  So that is still a very real piece of leverage.  

7:23 PM PT: Top of the rec list? I'm honored that my words touched a cord with so many of you.

 A couple of more quick updates: Despite all their bluster and drama, the House of Representatives is showing itself to be increasingly irrelevant. I don't see how they function as a caucus that does anything but follow the Senate's lead, when they can't even get their own proposals passed through their caucus.

Second, it's important to point out that these "tax increases" are not the only ones going into effect this year that Obama managed to get passed (assuming the deal goes through) on the wealthy.  The ACA 0.9% Medicare Payroll Tax and the 3.8% investment Medicare surcharge go into effect for wealthy taxpayers.  And that's at the 200/250k levels.  So in his first term, the President will have managed to have passed two separate tax increases on the wealthy.

8:17 PM PT: The House passed the Deal 257-167. it's going to be law.  Even if you were unhappy with the deal, you would be more productive to getting the most favorable deal possible for the next cliff by focusing on lobbying for what you want to see accomplished in that one, rather than lamenting this one.

Originally posted to smash artist on Tue Jan 01, 2013 at 02:41 PM PST.

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