Tax cut ‘political reality’: Do Democrats really have to cave?

Dave Leonhardt of the New York Times purports this morning to explain why the Dems will be screwed if they don’t make a quick deal with the Repubs on the expiring tax cuts. It makes little sense to me, but the explanation goes like this:

In the lame duck session, the 58 Senate Dems need only two Repub turncoats to beat a filibuster and close a deal. Leonhardt seems to assume that the Dems can’t get any Repub votes if they stick to their longstanding proposal to renew the Bush tax cuts for the roughly 98 percent of all families that have taxable incomes below $250,000, but allow the rates to revert to Clinton-era levels on the roughly 2 percent of families that make more than a quarter million dollars a year. (Did I mention that that’s after all deductions?)

(A Dem talking point that also happens to be true: Even the wealthiest families would continue to get some benefit from the Bush tax cuts — specifically, they would pay the lower rate on the first quarter million dollars a year of income. But on the dollars they earn above $250K, the Dem proposal would jack their marginal rate from the current 35 percent back up to the 39.6 percent they were paying in the year 2000.)

Well the Dems just ain’t gonna get away with that, says Leonhardt, and they will really regret it if they don’t close a deal this month before the Repubs take over the House, at which point, he writes, the Dems will have little choice but to give the Repubs exactly what they want, which is the extension of all the Bush tax cuts for all incomes up to infinity.

Before that happens, Leonhardt writes, the Dems might be able to get the two votes they need to make the deal in the lame-duck session (he nominates the notoriously moderate Scott Brown of Massachusetts and the retiring George Voinovich of Ohio) if they offer to extend all the Bush tax cuts to incomes up to $1 million.

The $250,000 cutoff would raise about twice as much revenue (Dem word choice should be “reduce the deficit by about twice as much”) as the $1 million cutoff.

The leftier wing of the Democratic Party hates this idea, which is the current leading symbol of the left’s frustration with Obama’s leadership. I spoke to a liberal group out in Minnetonka the other night and I was struck by how angry they are at the unwillingness of Obama and other Dems to stand and fight.

They can’t believe — and I might as well confess that this is how it feels to me — that the vast majority of the lower-earning 98 percent have so much sympathy with the tax problems of the upper 2 percent that it becomes politically impossible for the Dems to just stick with their position and, if necessary, blame the Repubs for their intractable devotion to the worries of the wealthy if no deal is reached.

Leonhardt has clearly been talking to key senators and administration officials, and they just don’t see it that way. He explains the “political reality” that all the angry lefties have “skipped over,” which is what will happen if the Dems don’t do whatever they need to get a deal in the lame duck session:

“When the new Republican House majority arrives in January, it will be able to make its first order of business a retroactive tax cut — forcing President Obama and Senate Democrats to choose between a purely Republican plan and an across-the-board tax increase…

“Much of the recent commentary about the tax cuts has skipped over this political reality. It’s instead focused on how tough the Democrats should be and whether they should insist on the expiration of all the Bush tax cuts on income above $250,000 a year.”

 Now here’s the key to the “political reality.”

“But that’s no longer one of their options. Unless they believe they will benefit more than Republicans from a standoff in which taxes go up, which is hard to believe with a Democrat in the White House, their only choice now is among various versions of retreat.”

Is it not possible that, if the Dems hold the line, the 98 percent will blame the Repubs for holding their tax rate hostage to the wishes of the least needy 2 percent? Does the public really buy the Repub talking point that all those rich folks are small business owners who are just itching to start hiring if they can only get “certainy” about the future of their tax rates? (Listen for it, “certainty” is mentioned every time a Repub senator addresses this issue. But the future rates will be just as “certain” if the Repubs cave to the Dems as vice versa.)

If Leonhardt’s “political reality” is the real situation, how can the Dems hold any line? In the next two years, they will need Republican votes to do anything legislatively. The Repubs are very good at holding their lines.

Comments (14)

  1. Submitted by scott cantor on 12/02/2010 - 02:20 pm.

    It’s interesting how conventional wisdom assumes that the new Republican-controlled House of Representatives will be able to force the Democratic-controlled Senate to do anything at all. I mean, the Senate has really firmed up its reputation as a dysfunctional, do-nothing institution over the past few years (especially last two), so it seems pretty unlikely that an even closer D/R split is going to change that. If anything, the gridlock of the latter half of Obama’s term will make us wistful for the smooth-sailing days of 2009-2010.

    Notice I said “Obama’s term” not “Obama’s first term”. He has all the markings of a one term president, and the Democratic party needs to acknowledge this inevitability and plan for it. Hyperpartisan politics rules the day. W was able to get reelected by holding strong with his base and fooling enough in the middle. In contrast, Obama is reviled by the the Right. The Left who pay any attention correctly feel betrayed by him (he’s about as useful as a box of rocks in leading legislation, molding public opinion, and shaping debate). And the politically-ignorant Middle are losing their jobs and seeing their home equity collapse.

    So, as bad as people (on the Left) fear its going to be over the next couple of years, brace yourself for a Palinesque Republican president starting in 2013 with a full Republican Congress and no more filibuster or other parliamentary foot-dragging shenanigans.

    And truth will be obvious to all: the Democrats did it to themselves with their impotence and spinelessness when they had a lock on Congress and the White House. More than the electorate detest the opposite side of the political spectrum, they detest incompetence.

  2. Submitted by Ray Schoch on 12/02/2010 - 02:22 pm.

    Well, I’ve not read the article you mentioned, Eric, but that’s certainly (there’s that word again) the way I see it. The plutocracy is already pulling too many strings in Washington, I see no reason why they should be further rewarded. Moreover, a 4-point-something percent increase for those whose taxable incomes are more than $250,000 is hardly a backbreaking burden for people well able to carry a bit more of the load financially.

    And, lest I, you, people in general who are not right wing fanatics, be blamed for raising the ugly spectre of “class warfare,” the important point here is that this is the fiscally responsible course. We’re in deep fiscal trouble, there’s ample evidence that tax cuts do NOT “create jobs” any more than tax increases “hurt jobs,” and we need to raise revenue to keep our multiple wars and entitlement programs going. As you’ve pointed out, eliminating the Bush tax cut for the over $250,000 group will raise a substantial amount of revenue that this and future administrations are going to need if we hope to make a serious dent in the national deficit.

    As Andrew Carnegie – no liberal, he – said more than a century ago, it’s not their money anyway. They’re merely trustees, obligated to use the money for the betterment of society, and even Carnegie was willing to see tax rates for the wealthy go as high as 50 percent, which the current rate doesn’t even approach.

    I’m profoundly disappointed by the spinelessness of this administration and far too many Democratic legislators in the face of bald-faced lies, aggressively-phrased by Republican demagogues. By all means, hold Republican feet to the fire.

  3. Submitted by Bill Coleman on 12/02/2010 - 02:24 pm.

    Maybe the Democrats should up the ante. They could take the billions that the GOP wants to go back to the richest 2% and propose lowering all of the rates below the $250,000 level, especially for middle income and working class folks. People would spend those dollars, stimulate demand, start businesses, keep their houses, etc.

  4. Submitted by Ron Gotzman on 12/02/2010 - 02:26 pm.

    The Dems had two years to get this done. Why not pass the tax increase on “the rich” before the election?

    The “political reality” is, if they had voted to raise taxes on anyone during this difficult Obama economy, they would have lost even more house seats and a few more senators as well.

  5. Submitted by Lance Groth on 12/02/2010 - 03:46 pm.

    You’d think that Dems would learn to steal a few plays from the Repub playbook, given how effectively the Repubs have operated from a minority position, and how poorly the Dems have done with a strong majority. It’s simply true that the Dem leadership has no cojones, and I am deeply disappointed that they have no will for a real “knife fight”. They need some of the political nastiness of a Lyndon Johnson.

    Speaking as an independent who votes Dem, it feels rather like being a Vikings fan. You hope and dream and cheer them on, only to have your hopes crushed year after year when your team just can’t quite put it all together and ends up beating itself, and in the end mutter “well, maybe next year.”

    But, Mr. Cantor’s outlook is a bit too gloomy for me. There is no inevitability to a flip of the White House in 2012. Two years is a long time in politics, and the Repubs in the House must now learn to govern, which means compromise, which will surely enrage their tea party boosters. It is that “palinesque” nominee that will hand the White House to Obama for a second term. Whatever you may think of his record as President, his campaign skills are second to none, and Palin or anyone similar has no chance of being elected President. Remember, it wasn’t Repubs who flipped the House this year – it was independents dissatisfied with Dem performance, the same independents who elected Obama just 2 years ago. The Repubs have just that long – 2 years – to demonstrate that they can govern, which is a far cry from being the party of No. If all they hand the nation is more gridlock – or if they nominate a Palin – they’ll lose the independents again. Hyperpartisanship may rule the two parties, but the voters in the middle, who are by far in the majority, are sick to death of it.

  6. Submitted by Carol Logie on 12/02/2010 - 04:02 pm.

    What has been shocking is how badly Obama has performed in office as opposed to on the campaign. I literally can’t believe this is the same guy. Where did this brittle, thin-skinned ditherer come from? He talked for weeks about his mid-term “shellacking” as if he could hardly believe it, and as if it wasn’t deserved. And in doing so, just made himself seem all the more weak by pointing out over and over how badly the Dems had lost.

    Even when they lose, Republicans don’t admit defeat. Which is why we are where we are now. Count me among the spitting-mad base. I have voted Democrat all my life, and honestly, but for the Supreme Court nominees, I don’t really feel like it matters anymore.

  7. Submitted by Greg Kapphahn on 12/02/2010 - 04:20 pm.

    The Democrats absolutely do not have to cave.

    But they will.

    As will President Obama over every issue that’s important to him (and they actually are important to him) for the next two years.

    What’s going on in Washington reminds me of the adult lives described on NPRs “Talk of the Nation” this afternoon. The subject was bullies, bullying and the victims of bullies.

    Several people called in or sent e-mail comments to the effect that the way they were bullied as children left them sufficiently wounded that now, even as adults, they find they are completely unable to stand up for themselves in response to co-workers, bosses, family members, spouses, or even total strangers who come at them with a bullying attitude.

    They back off, or fold up completely, or have panic attacks, or even physically flee. They revert to feeling as if they were back on the playground and the bully(ies) they could never escape from are approaching.

    I believe it takes two things for this to happen to children. First and foremost, bullies must have been allowed to operate unchecked with the (all too common) result that when one of those being bullied stood up for him or herself THEY (the perennial victims) were the ones who ended up in trouble for getting in a fight.

    Standing up to a bully is twice as damaging if you weren’t able to successfully do so AND you got in trouble for even trying.

    Second, the victimized child’s parents reacted with horror that their child, whom they had raised to be meek and mild, had resorted to violence and, instead of being “nice” and befriending the bullies (which NEVER works in childhood) had been “mean” and fought with them.

    This combination of painful experiences gives the bullied child (and his more mature adult self) a very powerful psychological dysfunction very similar to PTSD. Whenever anyone comes at them too strongly they revert to feeling like that bullied child: they panic, they back off, they fold, they may even flee.

    THIS is the dynamic in Washington. President Obama and most of the Democratic leadership react to the obvious bullying practiced by the Republicans as if they were victimized school children. Currently they CAN’T do anything else.

    Of course with appropriate counseling help they could find healing for those earlier experiences and regain the “warrior” that they’ve lost, but to do so might very likely seem to them to be an outright rejection of the love of those who taught you that to EVER be anything but NICE was inexcusable.

    So, my friends, unless our Democratic friends recognize their dysfunctions and get help, we can expect that the next two years will allow the Republicans to accomplish everything they want, almost as if “W” were back in office and the year was 2002.

    All they’ll have to do is come on like bullies (which they’re VERY good at) and the Democrats will give them whatever they want, even if, in the heart of their hearts, they know it will bring devastation for the vast majority of citizens of this nation.

    As I said in an earlier post, LBJ must be spinning in his grave at the nature of what passes for leadership in the Democratic Party these days.

  8. Submitted by Dan Hintz on 12/02/2010 - 04:26 pm.

    They certainly don’t have to cave. But they probably will. Lance is right on with his Vikings analogy.

  9. Submitted by Richard Schulze on 12/02/2010 - 06:42 pm.

    Along with everything else you’ve mentioned, I would add that there is some significance in the fact that just passively allowing a temporary tax cut to expire is, in pretty much all media coverage and even in your blog post, labeled as a “tax hike.”

    Which could be more a matter for the WSJ blog than for this Blog, but either way I think it’s an example of how language frequently influences “real” issues.

  10. Submitted by Paul Udstrand on 12/02/2010 - 11:09 pm.

    I don’t know, the Democrats may end up fighting after all. The blue dog “realists” got creamed in the election. The progressive caucus now has the numbers and they’re in no mood for concessions. Leonhardt is a perfect example of the problem with Democrats… fear. He pretends his fears determine reality, as if what he’s afraid will happen is the only thing that’s certain to happen. If the Dems don’t cave… Well this is what Roosevelt meant when he said the only thing to fear is fear itself.

    Obama has been a huge disappointment. He looks like a idiot when he emerges from a meeting with future congressional leaders talking about good faith bipartisanship and they go out and all sign a pledge to shut the government down if the don’t what they want. I knew I was taking a chance with a consensus guy, which is what Obama is. You never know what kind of deals consensus guys will make, and they may not stand and fight when they should. I had hoped Obama would recognize the nature of his opposition and make a stand, so far he hasn’t.

    Meanwhile I say screw it, let all the bush tax cuts expire. Unless they can override an Obama veto the Republicans can’t extend them. The tax hike isn’t going to kill the economy anymore than the cut saved it. Let Republicans explain how it is they were sent to Washington to shake things up and delivered a tax hike because they wouldn’t compromise. Tax cuts are the only idea Republicans have… they don’t work, why give them to them?

  11. Submitted by Don Medal on 12/03/2010 - 06:56 am.

    Let’s say the line in the sand gets redrawn at $1 million/year. or $500K. Let’s say the Dems aggressively promote lowering the taxes under that, and enlist people over that line (Buffet and others) who’ve already said they support higher taxes on top earners. Use that extra income to reduce the deficit and not new spending, and it seems to me you have a solidly sellable political strategy. This would be an asset in 2012, not a liability. As others above have pointed out, the last two years have show the party in the minority in the Senate can pretty much hold up anything the House does.

    Pick a topic that the GOP can’t stand and run with it. Children’s health care, pre-natal care, both strike me as issues you can campaign on even with pro-life voters. Saving these is why we couldn’t afford to cut taxes for the rich during times of massive deficit.

    So why not stand for something solid, Dems? “If you stand for nothing, you’ll fall for anything” and get your rear kicked in 2012.

    Or could the strategy be so devious as to let the GOP get Palin in office while holding a fillibuster capaable minority in the Senate, and in the mess that follows, win elections consistantly after 2014? That seems too organized for a party which can’t seem to come up with any principles to stand for.

  12. Submitted by Alec Timmerman on 12/03/2010 - 08:16 am.

    According to conservative economist Mark Zandy, of Moody’s economy.com, continuing the Bush tax cuts will return only 30 cents on the dollar of cost to our deficit. http://ahsstats.files.wordpress.com/2010/01/tax-cuts.jpg

    We also know that these upper class tax cuts do not create jobs. Corporate America reported 1.8 trillion cash on hand last quarter, so they have the money to create jobs, there is just no demand. When the wealthy have cash their is no incentive to spend it, so they save it. It doesn’t go back into the economy.

    So, wealthy tax cuts:

    1) increase the deficit
    2) Do not do anything for economy growth (look at the chart I linked)
    3) Do not create jobs
    4) Increase our banana republic level of inequality.

    There is no reason for someone who actually cares about the middle class or our future to support the Bush tax cuts. The GOP serve the economic monarchs, not the people.

  13. Submitted by Alec Timmerman on 12/03/2010 - 08:20 am.

    One last thing. Obama cut our federal taxes to the lowest level in 50 years! However, the vast majority of Americans thought he raised them. If they can’t get their message out better they might as well raise taxes. Everyone believes it anyway.

  14. Submitted by Michael Zalar on 12/04/2010 - 05:05 am.

    You know, I wasn’t jumping up and down or going crazy with wild excitement when the Bush tax cuts kicked in. It was a little more per check, but just not enough for me to make any life any different for me. If they go away, I will see a little bump, but not enough to really make me care that much.
    Personally I willing to take that little hit if it will keep the America that I love and care about going.

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