One of the least convincing arguments about the tax deal is that it is the opening move in the President’s long game. Given that the Republicans control the House and are likely to do so for the remainder of his term, and further that the President just used his final electoral mandate for these tax increases, this is far more likely the high water mark. Frankly, it takes an ahistorical notion of time (like the type that leads some commenters here at Dailykos to insist that restoring a small portion of the Bush tax cuts to 2001 levels represents the “highest tax levels in decades”) to see President Obama’s deal as part of a long game.
This is not to say that I think President Obama has betrayed us or that he is anything but a decent man trying to navigate a very difficult situation. But rather, as I’ll discuss later in this post, this is a continuation of the short game the President has played at each of the fiscal confrontations that has marked his Presidency.
To see what playing the long game really looks like, take look at the trajectory of the top marginal tax rate since its apex following World War II (h/t VisualizingEconomics.) This chart is pre-final deal.
The top rates only reveal a small portion of the Republican long game to reverse the New Deal and redistribute wealth upward. (More below the fold)
Going into this negotiation taxes as proportion of GDP were at a 60 year low. The tax reductions that took place over this period were focused on the top end. But even more worrisome was the increased preference for wealth over work. In what to me is the worst aspect of the tax deal finalized yesterday this preference was enshrined in the provisions on the inheritance tax and worse still the failure to restore the 40% tax on capital gains and dividends. (Chart Source: Washington Post)
Meanwhile, the expiration of the payroll tax cut while necessary to help defend Social Security from the coming attacks, reminds us of the most regressive tax shift of the Reagan era, the 1983 deal on Social Security.
So payroll taxes that impact those making $110,000 or less far more than those making $250 to $400,000, remain at historic highs while the top marginal income taxes and wealth taxes are near 100 year lows.
It is the preference for wealth over work that is driving the increased concentration of wealth and the concomitant concentration of power that reinforces wealth concentration through skewed public policy on taxation, etc. And this fiscal deal really represents a culmination of a decades long effort by Republicans to get Democrats to own these policy preferences.
So why if as I believe, President Obama is a decent man who cares about the poor and middle class, did he negotiate this deal? It’s because he wants to keep the economy growing. A growing economy puts people to work and that in and of itself is the best social program. Further, it reduces demands on the government and increases revenue which is the best way to close the budget deficit. The Bush recession is the largest single cause of our current budgetary imbalances.
I conclude this because of a consistent set of policy decisions from supporting Bush’s bank bailout, to agreeing to the extension of Bush tax cuts the last time around in exchange for stimulus (payroll tax holiday, previous extension of Unemployment insurance), to agreeing to the sequester, and finally yesterday’s deal on the “fiscal cliff”. In each instance faced with an economic team predicting calamity without a deal the President has erred on the side of short-term deals (e.g. temporary payroll tax holiday) to start and keep the recovery going.
Now as a strategic and tactical matter I don’t actually agree with the President’s decisions in this regard. In fact I believe much of it is self-defeating. But I also know that its much easier to feel that way when you don’t have to live with consequences of being wrong, especially if those consequences include a worldwide economic depression.