Some preliminary thoughts from the smoke emerging from the Capitol. It looks that any compromise will indeed mean a big movement from Obama's clear campaign platform to raise income taxes to Clinton era levels on those earning $250,000 a year. That number appears to be hovering at $400,000 or even higher. Chait is getting nervous:
The tax cuts are the one area where [Obama] enjoys overwhelming leverage over the Republicans. Their only threat is to block extension of tax cuts on income under $250,000, a wildly unpopular stance countless Republicans have acknowledged they could not sustain for long without courting an enormous public backlash. This is the hand where Obama needed to collect all the chips. Instead he is allowing Republicans to whittle down the sum by essentially threatening to shoot themselves in the head.
And this is the most ominous thing about it. The big meta question looming over Obama’s term is whether he has learned to grapple with Republican political hostage-taking. Hostage-taking is not simply aggressive or even irrational negotiating. It is the specific tactic of extracting concessions by threatening to withhold support for policies you yourself endorse, simply because your opponent cares more about the damage.
I think Obama has always understood that his second term will not only be determined by his bargaining skills with the GOP leadership but by the economic consequences of failure to get any deal at all. So I can see the reason for letting the $250,000 level go up. What I don't understand is why he cannot attach a new stimulus to that concession. Or indeed get any other concession for it except jettisoning the eminently sensible chained CPI proposal.
Apparently, Senate Democrats are also trying to suspend the sequester, which seems to me a bad idea. We desperately need to cut spending by a trillion over the next decade if we are to return to fiscal balance, especially given the puniness of the tax increases now taking shape. I support keeping it – and cutting half from defense and half from entitlements, rather than domestic discretionary spending. We need to retain some measure of urgency in controlling the debt monster before it truly does control us – and it's entitlements – not discretionary sending – that are the core problem. But at this point, those long-term questions are being entirely overshadowed by the short-term deals and last-minute compromises that legislating under this kind of insane timeline will inevitably bring.
Yes, America is screwed. We might as well get used to it.
(Photo: House Majority Leader Eric Cantor, a Republican from Virginia, center, arrives at the U.S. Capitol in Washington, D.C., U.S., on Monday, Dec. 31, 2012. U.S. lawmakers hurtled toward a midnight deadline to avert hundreds of billions of dollars in tax increases and spending cuts, struggling to extract the country from a fiscal trap they created. By Jay Mallin/Bloomberg via Getty Images.)
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