A lot of what I have to say before isn't new, but I hope that I'm organizing it in an accessible way.
Supporters of what I'll call the Obama-McConnell deal defend it with essentially the argument that if we don't pass a deal, the GOP will pass something worse when they gain (partial) control of Congress next month. I've thought about this seriously, and I'm not convinced for several reasons:
A. We still have leverage from the Senate's (and even the President's) ability to block bad proposals.
B. Almost whatever bad things they want to do they can probably do anyway, sooner or later.
C. They may do the things now considered to be "concessions" anyway.
D. They may be willing to go less far with a GOP partisan proposal, for which they take the responsibility, than one they can paint as bi-partisan.
E. They stand to lose more from delay than we do -- especially once the public starts paying attention.
So let's work through the consequences if we let the tax cuts expire -- at least for a while.
In this analysis, I'm going to rely largely on the work presented in 8ackgr0und N015e's excellent diary, which is damn near essential reading on our present situation (especially if you're married to Michelle Obama.) But I'll get to that after the first important prediction, which doesn't rely on prognosticating policy changes. And that prediction is:
1. People will start to pay more attention.
"But aren't people paying attention to it now?", you may ask? Not really so much -- not compared to what they'll do once their temporary decade-long tax cuts expire in January. The front page of the nytimes.com has stories on an Afghan drug lords, the funeral of Elizabeth Edwards, the suicide of Bernie Madoff's son, the modest climate change agreement, anticipation abortion legislation, and several other stories that that aren't this one. It's nowhere near the top story on cnn.com. On CBSNews.com, Clinton's take on the tax cuts is one of the top stories -- specifically, #11 out of 11. People are probably aware of the story, but not yet really aware of it, not in a way that -- like the government shutdowns on 1995 -- is truly lasting.
Does the prospect of people becoming truly aware of this story help us or hurt us? Well, it depends on how good of a story we have to tell. Right now, the story we have to tell is that we're willing to give everyone a cut over what will in a few weeks be our higher tax rates, but the Republicans won't do it unless they get an extra tax cut for the rich.
Do we want people to pay very close attention to that story as the crisis level builds? Yes, I think we do. The Republican strategy is predicated on our folding. If we don't fold before people feel a little of the pain, the Republicans are going to freak out, because they people will remember what they really did, instead of barely recalling what they threatened to do. Right now, this is not a replay of 1995, when people paid attention. But it could be.
But but but! Unemployment, the poor, etc.! Good questions -- thanks for asking. Of we go to the answers.
2. The Republicans lose more from failure to pass this legislation than we do.
Now we really do have to contend with 8ackgr0und N015e's charts, which I'll produce in smaller form below. Here are two showing a bar chart and pie chart -- blue meaning Dem, red meaning GOP, and green meaning "bipartisan" -- for what the conservative WaPo says is the "who wins" in the Obama-McConnell deal:
After readjusting who really favors what, 8ackgr0und N015e comes up with the following charts:
And then for the coup de grace, he presents this devastating chart of the per capita savings taxpayer of various income levels stand to gain from each plan:
This alone would seem to make the point in the subtitle above: the Republicans are the ones who will be sweating if we don't pass (let alone "cave in on") this deal -- so, we can get a better deal. This would not be the case is we didn't have a compelling story to tell. But, in fact, Obama bending over backwards like this -- so long as he'll STFU about blaming Democrats for any failure to enact it -- actually gives us an even stronger deal: he was willing to go along with this bad deal to save "the hostages," but they took it too far. That's a high-concept, easy-to-understand, story.
Furthermore, their constituents will be pissed at them if nothing passes more than ours will be at us.
3. Who wants what passed when?
Now, in fact, I think that 8ackgr0und N015e went a little too far in the assumptions he made in that second pair of "corrected" charts. I disagree with some of the classifications he made and I think that he didn't break things down as much as I would by looking at different kinds of payoffs -- policy versus political -- of various outcomes. Separating out the policy outcome from the politics accompanying it will, I think tell an even stronger story.
Here's how I'd break things down -- those that did get into the bill as it stands and those that were discussed but didn't make it (with asterisks) -- into fifteen rather than ten policy pieces:
Temporary high-income tax cut renewals ("Temp hi cut")
Permanent high-income tax cut renewals ("Perm hi cut")*
Temporary lower-income tax cut renewals ("Temp lo cut")
Permanent lower-income tax cut renewals (Perm lo cut")*
Estate tax rate cut ("Estate rate")
Estate tax cap hike ("Estate cap")
Index of AMT ("AMT")
R&D tax extension ("R&D")
Extend UI benefits ("UI")
Extend UI benefits for 99ers ("99s")*
Extend EITC ("EITC")
Business exp ("Biz")
Payroll tax holiday ("Payroll")
Non-payroll cut tax equivalent to payroll tax cut ("Non-payroll")
Raising debt limit ("Debt limit")
We have to evaluate this plan, after all, both in terms what was obtained and what might have been but wasn't obtained.
That's just the policy side. We also have to address the politics side: not just what each side would favor in some abstract sense, but what they wanted to pass short-term and what they would not have wanted to fail to pass by, say, early next year. Here's how I rate the above:
Favored policy: (italics = not in current bill)
Dems: Temp lo cut, Perm lo cut, UI, 99s, EITC, Non-Payroll, Debt limit
GOP: Temp hi cut, Perm hi cut, Payroll
Both: AMT, R&D, Biz
Politically favored time to enact policites:
Dems (by December): Temp lo cut, Perm lo cut, UI, 99s, EITC, Non-payroll, Debt limit
GOP (by December): Temp hi cut, Temp lo cut (if temp hi cut), Perm hi cut, Payroll
GOP (after December): UI, temp lo cut (even if no temp hi cut), perm lo cut (if perm hi cut)
Both (by December): AMT, R&D, Biz
In other words, after December we could expect to get the UI extension anyway, and a temporary lower income tax cut even in the absence of a temporary higher income tax cut in January or so. This is not because the GOP likes these two policies, but because they don't want to be seen as having blocked an extension of current UI policies (because the Democrats could effectively beat them up over it) or low-income tax cut extensions (because the public would beat them up over it even before the Democrats got to them.)
4. How much worse can (and will) they make it?
I'm not confident in the price-tags of each proposal (especially the ones not passed), and even less so of my ability to graph them freehand in Photoshop, but it seems to me that we can fairly well compare the current plan both to what might be expected to pass in January under GOP rule, as well as to the best and worst cases. Let's go item by item:
In current plan:
Temp hi cut -- very likely in Jan. plan
Temp lo cut -- as or more likely in Jan. plan
Estate rate -- probably in Jan. plan
Estate cap -- probably in Jan. plan
AMT -- definitely in Jan. plan
R&D -- definitely in Jan. plan
UI -- probably in Jan. plan
EITC -- probably in Jan. plan
Biz -- very likely in Jan. plan
Payroll -- probably in Jan. plan
Not in current plan:
Perm hi cut -- possibly in Jan. plan
Perm lo cut -- as or more likely in Jan. plan
99s -- probably not in Jan. plan
Non-payroll -- probably not in Jan. plan
Debt limit -- probably not in Jan plan
So when we look at it, it's not clear how much worse Republican both can and would make this plan. Some observations:
Income tax:
(1) They want parity between retaining tax cuts for the rich and non-rich. They don't want greater percentage-wise income tax cuts for the rich because that's too obvious. So we may end up with temporary for both -- same as now.
(2) If this is what happens, we (in more or less opposition) will be able to bring up bills to make the temporary lower-income tax cuts permanent.
(3) If they still want parity, we can talk about the other change being a budget buster.
(4) If the GOP are able to get their way with permanent cuts, that means they have enough power that they will be able to do so regardless of whether a plan passes in December.
Estate tax:
(5) This won't get much if any worse -- and if they can and want to make it worse, they will do so later anyway.
(6) At worst, this becomes a trade-off for the UI Extension -- which is just what it is right now. It's no worse.
Consensus credits
(7) Indexing the AMT will happen regardless, just as it is now.
(8) Research credits and business benefits would be just as they are now.
UI-related
(9) They could cut the UI extension, even though they have always backed down on it. If they do, they'll have hell on their hands -- this would get through to the public. This is not something we bargain for; this is something we dare them to do if they want the consequences, and then we raise holy hell.
(10) I doubt that we'll get anything more for the 99ers, but it's possible -- and take the 99ers issue and multiply it by 10 or so and that's what to expect from the point above.
EITC
(11) They could cut the EITC. But in that case, we can stop it from passing. And, of course, they can stop the EITC anytime they want in the future, given the actual or granted power. They likely won't -- because it's bad politics.
Payroll tax
(12) I disagree with 8ackgr0nd N015e that this should be credited only to Republicans: Democrats wanted the amount of money, and Republicans wanted this form. This changes the size of those pie slices in the second pair of charts. So let's imagine the worst: the Republicans cut this out of the deal and Obama for some reason (to help the unemployed? to stick it to Bernie Sanders?) signs it anyway. What do we do then?
If that happens, we "play politics" and shoot for tax benefits for the poor and middle-class every chance we get. (If Obama has any sense, he'll announce this plan before he signs it -- and during, and frequently after.) This would be a political gift from Republicans and they know it -- that's why they're not likely to do it. Meanwhile, by getting rid of the plan in this form, we have time to come up with alternatives that would accomplish much the same thing without implicating Social Security -- like increasing the standard exemption (temporarily or permanently) by a comparable amount, or by reducing the lowest tax bracket to 8%, or whatever. Is this not progressive enough? Then maybe raise the Soc. Security limit modestly, say to $130K -- or, better yet, keep that part where it is but impose a surtax from $1-2 million. We're not going to get this done correctly now; in time, we will.
Wildcards
(13) What the Republicans could do, of course, is add some extraneous stuff to a bill. They could hobble abortion rights in various new ways, propose anti-labor legislation, open ANWR, you name it. What if they do that? Well, we can say "yes" or "no" -- and the unwillingness to say "no" feeds their belief that we will eventually, in some "must-pass" legislation, say "yes."
Here's the thing: in two years or four, they are likely to control Congress. Toss in the ConservaDems and they'll already have a conservative majority. So if they want to do stuff, if they want to extort passage of their pet legislation, they're going to do it anyway. We're just going to decide if there's anything we want so badly that we'd give way on such principles. And I don't think there's anything that we want so badly that we're likely to be able to get to make such a trade-worth it.
So instead we're going to have to learn to say no to them, sooner or later -- I vote "sooner" -- and to take our case directly to the people. It's not a matter of whether we can fend this off: they will always be able to push us to the point where we have no choice. So it's really just a matter of when. Bill Clinton won not simply because of the government shutdown, but because he made such good use of it politically. We need to do likewise now.
Conclusion
Count me among those who believe that Obama is neither a Republican nor a fool, but he just sees his role as wheedling the best deal he can out of implacable opposition, especially to try to boost the economy before 2012.
He is, however, wrong here, and we have to convey that to him. He's getting taken. He has to learn, well, intransigence.
There is not much that Republicans would want to do to make this plan worse. The "hostages" they're holding -- EITC and lower-income tax cut retention and the substantive benefits (albeit in the wrong form) of the payroll tax holiday -- are just not ones they're likely to have the guts and lack of political sense to put into a 2011 bill. Sure, they're saying otherwise -- but only because they don't have to make good on their threats and the public is not really yet paying attention.
If that's so, then the downside of letting the Republicans "own" this plan in January is quite minimal and the upside, in terms of improving it, is quite substantial. The first step, unfortunately and ironically, is to let the public feel some pain from this. We're not letting this happen because we want it to, but because the Republicans are being intransigent and they need to either give in or see the consequences of not giving in. That's the only way they'll learn not to pull this sort of stunt.
Meanwhile, perhaps the Democrats can put together some soup kitchens and housing and otherwise ostentatiously help to reduce the harm that the Republicans are imposing on much of the public. The thing Republicans fear most is that we'll play politics well and help the public see what's really going on here. So that's what we have to do. The only reason that Republicans can be as bad as they are is that they think they can do it without consequences. Let's create consequences.