I’ve been writing quite a bit about Nancy Pelosi’s shift on the Bush tax cuts from a demand that the top two brackets, over $250,000 in income, revert back to Clinton-era rates, to a new call for tax cuts on incomes over $1 million to expire.
I got a little pushback from some who argued that this is nothing new, and that Democrats, particularly Chuck Schumer, had been flirting with the millionaire dividing line for a while. I’m not sure why that was any better, but there’s no question that Pelosi’s stance specifically on the Bush tax cuts sowed confusion on the Democratic side, and left them without consensus.
Now, Pelosi, in a USA Today op-ed her office blasted out to reporters, essentially admits that her dividing line on the Bush tax cuts represents a change in direction. In fact, she offers a reason for the change.
Democrats have always opposed the Bush tax cuts for the wealthiest Americans. Since President Obama’s election, we have repeatedly called for an end to tax cuts for those making more than $250,000 a year. Republicans have rejected this effort, holding tax relief for the middle class and small businesses hostage to permanent tax breaks for millionaires, Big Oil, and corporations that ship jobs overseas.
Democrats are committed to moving the process forward by asking the wealthiest to pay their fair share through the expiration of tax cuts for those earning over $1 million a year. Democrats are committed to using the significant savings to reduce the deficit. And in the future, Democrats are committed to reforming the tax code, closing special interest loopholes.
So, Democrats were once united on the $250,000 dividing line, but now, in an effort to “move the process forward,” Pelosi has decided to reduce revenues by 43%, half of which would go directly to millionaires on their marginal income between $250,000 and $1 million. This is called “negotiating with yourself.” Republicans aren’t interested in letting any of the Bush tax cuts expire. They’ve made that abundantly clear. So pushing the dividing line up and up won’t get Republicans to agree to anything. Moreover, it just weakens the bargaining position, especially when there’s no consensus number.
Now, I happen to think that, for many of these same reasons, creating an artificial dividing line at all is a policy doomed to failure. It didn’t work in 2010, as Republicans simply refused to sever the “middle class” tax cuts from the rest of them. As a result everything got extended. The only way to gather revenue from the expiration of the Bush tax cuts is to let them all expire. After the fact, then you can go back and create “Democratic tax cuts” or “Obama tax cuts” for the middle class, and like the payroll tax cuts debate, it will be difficult for Republicans to say no. But they won’t help before the fact by separating two kinds of Bush tax cuts.
Democrats counter that the fiscal cliff will offer opportunities for a grand bargain on taxes and spending, and you could get a split on the Bush tax cuts in that scenario. But that argues not for abandoning the pledge, now four years in the making, on expiring the tax cuts above $250,000 in income. It argues for a strong opening bid, if there’s a negotiation in process. It doesn’t suggest that you “move the process forward” months before the negotiation starts.