President Obama positioned himself well politically in his statement on the demise of the Super Committee yesterday, particularly with this passage:
One way or another, we will be trimming the deficit by a total of at least $2.2 trillion over the next 10 years. That’s going to happen, one way or another. We’ve got $1 trillion locked in, and either Congress comes up with $1.2 trillion, which so far they’ve failed to do, or the sequester kicks in and these automatic spending cuts will occur that bring in an additional $1.2 trillion in deficit reduction.
Now, the question right now is whether we can reduce the deficit in a way that helps the economy grow, that operates with a scalpel, not with a hatchet, and if not, whether Congress is willing to stick to the painful deal that we made in August for the automatic cuts. Already, some in Congress are trying to undo these automatic spending cuts.
My message to them is simple: No. I will veto any effort to get rid of those automatic spending cuts to domestic and defense spending. There will be no easy off ramps on this one.
If you read on, however, you find that Obama has no problem with changing the trigger cuts, as long as it’s a “balanced” plan of the same value. In other words, those who want to avert the defense trigger are going to have to raise taxes. And, as Obama says, “they’ve still got a year to figure it out.”
Then the President shifted to his immediate task at hand: extending the payroll tax cut.
Now, in the meantime, we’ve got a lot of work left to do this year. Before Congress leaves next month, we have to work together to cut taxes for workers and small business owners all across America. If we don’t act, taxes will go up for every single American, starting next year. And I’m not about to let that happen. Middle-class Americans can’t afford to lose $1,000 next year because Congress won’t act. And I can only hope that members of Congress who’ve been fighting so hard to protect tax breaks for the wealthy will fight just as hard to protect tax breaks for small business owners and middle-class families.
Notice that extending unemployment benefits, also set to expire, and something that has a higher multiplier as a stimulus measure, never gets mentioned. There’s an allusion to how “We still need to put construction workers back on the job rebuilding our roads and our bridges. We still need to put our teachers back in the classroom educating our kids.” There’s nothing about not cutting off the long-term unemployed after the holidays.
As I said, this is good political positioning. Obama looks like the adult to the Villagers, he keeps the rating agencies at bay by saying that responsibilities will be met through the power of the veto pen. He positions the Republicans as wedded completely to taxes for the wealthy, a good contrast for him. And according to Marc Ambinder, the plan is to use the bounty from war savings, the drawdown in Iraq and Afghanistan, to pay for the payroll tax cut and extending unemployment benefits (though it didn’t get a mention last night).
In the short term, according to White House officials, the president wants Congress to pass an extension of unemployment insurance and to renew his payroll-tax cut, paying for both items with money derived from the drawdown of troops in Iraq and Afghanistan.
This requires a deft touch. If the president slams Congress too hard for its failure, they will be less inclined to work with him on these near-term initiatives. Republicans are more likely to work with him on the payroll-tax cut because they don’t want to be linked to a tax hike, even if that means getting behind an Obama initiative. But unemployment insurance is a different story — the White House does not know if there are enough Republican votes in the House for an extension of jobless benefits.
And therein lies the difference. That was true on the committee as well, incidentally, so this notion that the Super Committee fail has anything to do with the expiration of stimulus measures is really a stretch.
As long as the President can stand down his own handpicked Defense Secretary, and tell him that the military wasn’t broken in 2007, and shouldn’t be in 2013 when they would have the same budget, I think the defense cuts actually have a chance to go through. There’s not going to be some magic agreement any more than there has been before.
But the payroll tax cut and the unemployment extension is a trap of Obama’s own doing. It was insane – insane – to only extend those through 2011 in the Bush tax cut deal, while extending the tax cuts through 2012. There was no reason to believe that GDP growth, jobs and unemployment would be back to normal by the end of 2011 when the Bush tax cut deal was signed. Jim McDermott was prescient at the time of the deal:
“One year of unemployment benefits for two years of tax breaks for the rich? What kind of deal is that?” said Rep. Jim McDermott (D-Wash.), describing the gripes of “plenty of people” during a meeting between Biden and House Democrats […]
“The rich get everything they wanted,” said McDermott. “They don’t care about the other stuff because they know it will all go away. The unemployment benefits — we’re gonna be fighting that one this time next year, right in the middle of when they’re in control. What chance do we have then? Zero.”
It was obvious that this would present a fiscal drag going into an election year, which the political science literature says should be avoided at all costs. There’s still a chance to pull this out; there’s a pay-for, and Republicans will be under some pressure to avert a tax hike that will be blamed on them. But the long-term unemployed may be out of luck. And it didn’t need to be this hard.