The Fight Will Continue: Democrats Will Lose Now But They Can Win Later
Democrats are going to lose this one. The first stage of the emerging deal doesn’t include revenue, doesn’t include stimulus, and lets Republicans pocket a trillion dollars or more in cuts without offering anything to Democrats in return.
The second stage convenes a congressional “Supercommittee” to recommend up to $2 trillion in further cuts, and if their plan doesn’t pass Congress, there’s an enforcement mechanism that begins making automatic, across-the-board cuts to almost all categories of spending. So heads Democrats lose, tails Republicans win.
It’s difficult to see how it could have ended otherwise. Virtually no Democrats are willing to go past Aug. 2 without raising the debt ceiling. Plenty of Republicans are prepared to blow through the deadline. That’s not a dynamic that lends itself to a deal. That’s a dynamic that lends itself to a ransom.
But Democrats will have their turn. On Dec. 31, 2012, three weeks before the end of President Barack Obama’s current term in office, the Bush tax cuts expire. Income tax rates will return to their Clinton-era levels. That amounts to a $3.6 trillion tax increase over 10 years, three or four times the $800 billion to $1.2 trillion in revenue increases that Obama and Speaker John Boehner were kicking around. And all Democrats need to do to secure that deal is…nothing.
This scenario is the inverse of the current debt-ceiling debate, in which inaction will lead to an outcome — a government default — that Democrats can’t stomach and Republicans think they can. There is only one thing that could stand in the way of Democrats passing significant new revenues on the last day of 2012: the Obama administration.
Republicans — and even some Democrats — think that the Obama administration lives to collect revenue. The truth is closer to the opposite. Senior administration aides view the expiration of the Bush tax cuts as less of an opportunity than a chore. About four-fifths of the cuts go to households making less than $250,000 a year, and they don’t want to raise taxes on those folks. They don’t like the politics of the issue, either. It’s an article of faith among Democratic strategists that debates on taxes inevitably favor Republicans, allowing Democrats to be hammered from the right and undermined from the left. White House aides would rather focus on “win the future” issues like infrastructure, education and energy.
The White House’s strategy in the debt-ceiling negotiations has reflected its ambivalence, with Obama trying to extract either as much revenue as Republicans would allow or as little as Democrats would accept. Obama even offered Boehner a deal in which the Bush tax cuts would be extended right now, so Republicans wouldn’t have to fear a subsequent negotiation in which they lacked leverage. Boehner rejected that deal and, in doing, might have saved the safety net.
But the Obama administration doesn’t want to take its second chance. They argue that the economy will still be recovering in 2013, and so it’s not an ideal time for a large tax increase. True. But what happens in 2012 is not simply setting tax policy for 2013. It’s setting tax policy for decades to come.
Health costs are rising and the Baby Boomers are retiring. If taxes don’t rise, none of these commitments are sustainable. And Republicans, in normal times, are perfectly capable of blocking any and all attempts to raise taxes. For Democrats, the expiration of the Bush tax cuts presents a unique opportunity in which GOP intransigence will mean more new revenues rather than no new revenues.
The alternative has been on clear display in recent months. Republicans can’t necessarily sell the country on big cuts in federal programs, but they can make them necessary. All they need to do is hold the line aganst taxes, allow deficits will continue to mount, and then use forcing events like the debt ceiling or the budget to demand huge spending cuts. A world in which the two parties can’t agree on tax increases but can agree on spending cuts is one in which the government eventually shrinks dramatically. Republicans understand this. Do Democrats?
A year ago, I was less concerned about the Bush tax cuts. I assumed, as did many in Washington, that the Republicans’ antipathy to taxes was a negotiating stance. Eventually, we would strike a “grand bargain” that would reduce spending and raise revenue substantially. The past few months have proved me wrong.
Republicans have shown, that they will block any and all tax increases, no matter what incentives they are offered in return and no matter how dire the consequences of their refusal. Next year’s deadline offers Democrats their only chance to negotiate from a superior strategic position. Republicans will still be able to refuse to raise taxes. But if they do, it won’t matter. The only way they can succeed in keeping taxes from rising is if the Obama administration and the Democrats stand shoulder-to-shoulder with them to extend the Bush tax cuts.
By: Ezra Klein, The Washington Post, July 31, 2011
Is Harry Reid Caving Or Calling The GOP Bluff?
If you can still remember the GOP position when the curtain first rose on Debt Ceiling Theater, you will recall that the Congressional Republicans had put forth two goals.
First, an agreement whereby every dollar permitted to be borrowed by a raise in the debt ceiling would be matched by a dollar of cuts in the federal budget; and Second, there could be no tax increases as a result of the process.
Senate Majority Leader Harry Reid (D-NV) is now offering up a plan that ostensibly meets the GOP demands by proposing a $2.7 trillion cut in federal spending to be matched by a like increase in the debt ceiling – with no tax increases or revenue boosts required.
That certainly sounds like a win for the GOP, doesn’t it?
Maybe it is – maybe it isn’t.
If the Republicans take the deal, they will accomplish a few important things.
For starters, in a country where few people read beyond the headlines and often believe what they are told by Fox News, a GOP declaration of victory would likely hold up – even if that victory proves to be little more than a cosmetic win.
Such a deal would also leave many on the left dispirited, believing that the President and the Democrats – by allowing the GOP to wriggle off the hook on revenue increases – will have, once again, caved to the opposition. This would threaten to split the Democrats at the worst possible time as we head into an election year.
But the devil is always in the details – and the details very much skew to the Democratic Party perspective.
Much of the cuts in the Reid plan are tied to reductions in spending on our two wars along with discretionary spending cuts. By structuring the cuts in this way, Reid is creating an incentive for the war supporters in Congress, and the President, to get out of Iraq and Afghanistan once and for all.
Accomplishing this would likely be perceived as a ‘win’ by many American voters who think it is time to bring these wars to a conclusion. Of course, those who are focused on achieving true and well defined cuts to our federal budget would likely see this maneuver as an example of budget trickery intended to create the appearance of a cut where no cut is really is going to take place if we continue our battles overseas.
More importantly from a political perspective, none of the budget reductions in the Reid proposal touch the entitlement programs that are sacrosanct to both the left and the rank-and-file members of Democratic Party, not to mention – if the polls are to be believed- Independents and many Republicans.
Finally, the Reid proposal provides a large enough raise in the debt ceiling to take us beyond the 2012 elections.
While the failure to get any revenue increases would, no doubt, be a black mark against the Democrats and the President, the Reid proposal would permit the Senate Democrats to argue that they succeeded in solving the debt ceiling crisis without impacting on entitlements – something the President was clearly ready to do in trade for revenue increases.
Preserving entitlements will make a lot of people happy and very possibly balance the anger of those who want the Democrats to hang in there until they accomplish some revenue increases by cutting corporate subsidies from the tax code and raising the rates on the wealthiest Americans.
The deal would also preserve to the Democrats the substantial political advantage they gained through the public revulsion to the Ryan budget plan and its dramatic impact on Medicare and Medicaid.
All of this puts the Republicans in a tricky spot.
If they accept Reid’s deal, they can claim a victory and go home.
But they will know that they really have won very little beyond the appearance of a win and some continued protection for the wealthy by holding off any tax increases – for now. Remember that the Bush tax cuts once again expire at the end of 2012. Should Obama win the election – and bring along some Congressional Democrats with him -the story could be very different than it was when Obama was forced to leave the Bush cuts intact in 2010 in order to protect the unemployment insurance payments so badly needed by the millions of out-of-work Americans.
Because of the questionable value of such a deal to those in the Tea Party Caucus, the group that very much appears to be in the driver’s seat these days, the Reid proposal could be a non-starter, forcing Boehner to, once again, pass up a compromise opportunity.
If Boehner is forced to say no, it would seem impossible for the Republicans to avoid blame after having passed up yet another effort on the part of the Democrats to compromise – this time by offering the GOP what they say they wanted in the first place.
You can also expect Democrats to be quick to point out that the war savings Reid is offering in his deal also show up as a budget cut in the Ryan budget – making it look all the worse for the GOP who would appear willing to claim war savings as budget cuts in their own budget but refuse to consider them valid when offered as part of a deal in this instance.
Harry Reid may be showing us that there is more to his strategy skills than what has previously met the nation’s eye.
Stay tuned. There is a long way to go.
By: Rick Ungar, The Policy Page, Forbes, July 25, 2011
Taxing The Poor: The Only Tax Increase Republicans Support
Throughout the debate about raising the federal debt ceiling, Republicans have denied deal after deal because Democrats insist on adding new revenues to trillions of dollars in spending cuts. Republicans have opposed repealing oil and gas subsidies, removing a tax loophole for corporate jet owners, letting the Bush tax cuts expire, and all other forms of revenue Democrats have suggested. Raising taxes in a weak economy, they argue, is unthinkable — even if conservative patriarch Ronald Reagan did just that.
But there is one tax increase some Republicans seem to favor: raising taxes on the working poor, senior citizens, and other low-income Americans.
While they fight the expiration of the budget-busting Bush tax cuts, Republicans have continually cited a report that shows that 51 percent of Americans don’t pay income taxes, even admitting that middle- and lower-class Americans need to shoulder a larger burden in deficit reduction efforts. Here is a sample of Republicans who have made that argument:
Sen. Orrin Hatch
(R-UT): In a May 5 appearance on MSNBC, Hatch said, “The place where you’ve got to get revenues has to come from the middle class,” saying the poor needed to understand “that there’s a civic duty on the part of every one of us to help this government to, uh, to be better.” On the Senate floor July 7, Hatch said the poor “need to share some of the responsibility” for deficit reduction.
Sen. John Cornyn
(R-TX): Cornyn also cited the report on the Senate floor July 7, when he said Congress needed to address tax reform to make the system “flatter, fairer, and simpler.” He then cited the report, saying, “51 percent — that is — a majority of American households — paid no income tax in 2009. Zero. Zip. Nada.”
Sen. Dan Coats
(R-IN): Coats echoed the talking point last weekend, saying “everyone needs to have some skin in the game.” He added: “I realize that some with low incomes and not much money are not paying much in taxes. Nonetheless, we all have a stake in this country and what needs to be done. I think it’s important that this burden not just fall on 50 percent of the people but falls on all of us in some form.”
House Majority Leader Eric Cantor
(R-VA): Cantor was among the first Republicans to begin hitting this particular talking point, doing so in April on CNBC’s Squawk Box. “We also have a situation in this country where you’re nearing 50 percent of people who don’t even pay income taxes,” he said.
Republicans, of course, ignore why most of the 51 percent do not pay income taxes and the myriad ways in which they are subject to other forms of taxation. The majority who do not pay federal income taxes simply do not make enough money to qualify for even the lowest tax bracket. But they do contribute through payroll, state, and sales taxes. Less than a quarter of Americans don’t contribute to federal tax receipts, and the majority of those are students, the elderly, or the unemployed.
Meanwhile, the richest Americans are paying less than they were a generation ago, leaving the United States with one of the largest income gaps in the industrialized world.
By: Travis Waldron, Think Progress, July 25, 2011
American Businesses: Success Is Because Of Government, Not In Spite Of It
While big business whimpers about high statutory tax rates, the effective tax rate paid by most corporations in America is often far lower than most other developed nations (thanks to loopholes and accounting tricks). Meanwhile, corporate tax receipts accounted for 30 percent of US federal revenues in the mid-1950s. In 2009, they made up just 6.6 percent of federal revenue streams.
In other words, not only are big corporations funding a smaller percentage of our shared social safety net, they’re paying a smaller percentage into funding the future infrastructure that they desperately need.
Imagine if big business got its way and corporate taxes were slashed even further. How would businesses suffer?
What would Oprah and Henry Ford have done?
Imagine if, when Henry Ford wanted to start the Ford Motor Company, he had to not only drill for oil himself but also oversee the laying of pipelines and production infrastructure across government-owned land so his cars could have gas to make them go. And when the American auto industry was expanding in the 1940s and 50s creating jobs throughout the nation, imagine if Chrysler and General Motors had to not only build their own factories and assembly lines but actually plan and construct the roads and interstate highways for cars to drive on.
Imagine if Oprah had to regulate the television spectrum for herself and that at random, bandwidth pirates could intrude on broadcasts of the Oprah Winfrey Show because there was no Federal Communications Commission monitoring ownership of and access to the public airwaves.
Imagine if every restaurateur today had to invest in his or her own food safety teams to make sure the meat served isn’t toxic. Imagine if every small business in remote rural communities had to generate its own electricity on site because the government wouldn’t have helped fund the expansion of power lines to those distant places. Imagine if every corporation had to educate its entire workforce from childhood to adulthood because there were no public schools.
Bill Gates would have had to run phone lines.
What if, when Alexander Graham Bell invented the telephone, he couldn’t get a patent from the United States government to protect his idea? Or for that matter, if there had been no laws to protect private property and no law enforcement, Bell might have had to sit up all night with a gun guarding his invention – instead of going out in the world and figuring out how to use it. When Bill Gates wanted to start Microsoft, consider if instead of drawing on the government-created infrastructure of the original Internet (which he accessed early on in high school through the publicly funded University of Washington), Mr. Gates not only had to invent Windows, but also invent the entire World Wide Web and run the wiring for the phone lines that originally connected all his potential consumers.
When Warren Buffet launched his investing career that ultimately earned him billions, imagine if in addition to hiring lawyers to run his business, Mr. Buffett had to hire judges, too, and create entire court systems to oversee and enforce the types of binding contracts on which the stock market relies. For that matter, imagine if Buffet had to print his own currency and negotiate its value against the currencies of all other individual investors.e infrastructure of private sector success
Taxes fund the infrastructure of private sector success
Businesses in the United States don’t succeed in spite of our government, in many ways, they succeed because of our government. Through our taxes, we fund the legal and economic infrastructure of private sector success. By definition, those businesses that get the most out of that infrastructure are those that should give the most back.
At a time when economic conservatives want to slash spending that helps the poor and middle class rather than raise the already-low effective taxes of big business, it’s shameful that corporations like General Electric and Bank of America effectively pay no taxes. In the context of the larger American story, where successful businesses of today support the public infrastructure for the businesses of tomorrow, saying that corporations should pay even less is downright un-American.
By: Sally Kohn, AlterNet, July 22, 2011
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