Do Democrats have a plan for dealing with the fiscal “cliff”? Based on interviews I conducted at Netroots Nation with four members of the Senate Democratic caucus — Senators Sheldon Whitehouse, Ben Cardin, Jeff Merkley and Sherrod Brown – it seems they have far more than one.
The end-of-the-year fiscal measures, totaling up to $7 trillion in deficit reduction, but which could cause a near-term fiscal shock that sends the economy into recession in 2013, show a contrast between the parties. We know exactly what Republicans want out of the so-called “fiscal slope”: they want to extend the Bush tax cuts permanently and replace the automatic cuts to defense with deeper cuts on the domestic side. It would both blow up the long-term deficit and create a fiscal drag, making it approximately the worst of both worlds. But it’s a plan. So where are the Democrats?
Of all the Senators, Rhode Island’s Sheldon Whitehouse had the clearest imperatives: end the Bush tax cuts above $250,000 in income, and hold harmless important safety net benefits like Social Security, Medicare and Pell grants. ”All of those are the hold fast that which is good stuff,” Whitehouse said.
But this doesn’t completely address all the elements of the fiscal slope. You still have the other trigger cuts, which will drag on economic growth (only Sen. Jeff Merkley of Oregon said anything about this, that he would be willing to let the defense cuts get triggered). You also have the payroll tax cut, which expires in December. You have a series of other tax issues, like corporate tax extenders and the alternative minimum tax. And you have unemployment benefits for millions of long-term jobless.
“I think the payroll tax is gone,” said Sen. Ben Cardin (D-MD), confirming an open secret in Washington. ”Nobody’s asking about it.” Nobody’s really asking about unemployment benefits either, but Cardin believed the President would make that a priority as part of an overall deal.
Among the many unanswered questions for Democrats are how they deal with the Bush tax cuts and what dividing line they use for their expiration. House Minority Leader Nancy Pelosi raised some eyebrows last month when she asked Speaker John Boehner to extend “middle class” tax cuts up to $1 million in income. All four Senate Democrats interviewed, Whitehouse, Cardin, Merkley and Sherrod Brown (D-OH) expressed a preference for drawing the line at $250,000. Cardin called it a “clear division.” Brown basically kicked the issue upstairs to President Obama, saying that he needed to stand strong on the issue. To his credit, the President reiterated his commitment at $250,000 last week.
Whitehouse broached the subject of a compromise at $500,000. But he said that could be coupled with something like lifting the payroll tax cap for Social Security, which would get at a more progressive distribution of taxes while closing the long-term social insurance funding gap. He added that his version of the Buffett rule, which would set a millionaire’s minimum tax at an effective rate of 30%, would also move in that direction. ”We’ve got a real opportunity there because the traditional alternative minimum tax has become kind of a thorn in everybody’s side and frankly isn’t working for huge income earners,” Whitehouse said. ”There’s an opportunity for the Republicans to say, ‘we got rid of the AMT,’ and for us to say ‘we got an effective Buffett rule.’”
Then there’s the question of how to sequence the expiration of the tax cuts. There was some sympathy, more than in previous years, for allowing all the tax cuts to expire, then coming back with “Democratic tax cuts” afterwards, daring Republicans to vote against them. Senators Merkley and Brown felt that had to be included as an option. ”You can’t give up your leverage in advance,” Merkley said. Brown added that he would rather handle the tax situation before they expire, but the caucus “needs to do what we need to do. I’m not so willing to compromise this time.” Even Cardin, who seemed the most interested in a grand bargain (saying “our spending is too high and our revenue is too low”), and who wanted a simple message on the tax cuts rather than a high-stakes expiration strategy, agreed that Democrats would have to walk away if Republicans were unyielding and wouldn’t allow any split of the Bush-era tax rates.
“After January 1 creates a real benchmark moment for the Republicans who are sworn to Grover Norquist,” Whitehouse said. “Because once January 1 happens, his theory that the Bush tax cuts are going to be extended indefinitely begins to look pretty foolish when they’re actually not there… What was a god-awful tax increase becomes a wonderful tax decrease, and it’s the same thing.”
Whitehouse was perhaps the most creative about the situation, which he thought offered unique opportunities because of the must-pass nature. ”When there’s a lot of big stuff moving around, interesting opportunities can present themselves, and I think coalitions can emerge,” he said. For example, he wants to try to get something done on pricing carbon in the midst of this discussion. While this seems fanciful, he said that a bloc of 15 or so Senators on the progressive side could hold out for something of value if they were needed for the deal to pass.
Merkley in particular expressed concern over a backroom deal negotiated by the leadership, without input from committees or the public. ”The American people deserve not to have decisions made in back rooms during the holidays,” he said, in remarks I covered earlier. Merkley wants whatever set of solutions emerges to come out of the committees of jurisdiction. However, Whitehouse said that the committee process would be challenging given the narrow timing of the lame duck. Nevertheless, Whitehouse expected positions to be laid out in the light of day. ”The President’s going to have one position, Boehner’s going to have another, the Senate will be a little bit more in play, and the public’s going to know exactly what those are.”
Cardin said the most likely scenario was an extension of everything, save the payroll tax cut, for a period of time, perhaps six months, while everyone regroups. Clearly there are a bounty of options on order here, ranging from a broad deficit deal that could harm the economy in the near term, to an extension that tries to expand growth while keeping the deficit steady.
I’m not seeing a lot of unanimity of thought, but Brown said that’s likely to change when the time comes. ”We are prepared to be unified and strong next year. The President needs to lead, and I think he will.”





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“I’m not seeing a lot of unanimity of thought, but Brown said that’s likely to change when the time comes. ”
You are a great writer, David, no question about it. I am totally savoring this sentence.
“…There was some sympathy, more than in previous years, for allowing all the tax cuts to expire, then coming back with “Democratic tax cuts” afterwards, daring Republicans to vote against them…”
That’s what they should have done in 2010. They didn’t then, they won’t this time, because they’re whores for the same fat cat donors as the GOPers.
How can these Republican moles continue to operate in the Democratic party? Pelosi sucks!
“they want to extend the Bush tax cuts permanently ”
Utterly impossible, since the Bush tax cuts expired in 2010. And George W. Bush does not hold elected office, let alone one with authority over taxes, so there is literally no chance of new Bush tax cuts.
Good job, David, in getting these gentlemen to comment. It is hard, though, to be optimistic that any of their best case scenarios will come to fruition.
But they always do, and they’ll do it this time as well.
What do they mean dividing line? These have been called “Bush Tax Cuts For The RICH” for 10 years.
26% of the Bush Tax Cuts For The Rich went to people making $250,000 or more. If you use that number for a dividing line, 74% of the Bush Tax Cuts For The Rich will still be in effect.
Should we start the betting pool as to when Obama starts negotiating with himself?
I have the day after the election if he wins, or his concession speech if he loses.
Absolutely. You have to wonder whether the administration has already pre-compromised. There is every indication that they have, including “…the bargain is still on the table…”
Remember health care reform where Obama went on national tee vee in September to reaffirm his support for the public option, even though he had already bargained it away six months previously.
Perfidy, thy name is Barry.
“To his credit, the President reiterated his commitment at $250,000 last week.”
On the contrary, I hate it when he does that. It usually means he’s already in the process of bargaining it away; see Pelosi’s $1M trial balloon. I doubt she did that without conversation with the WH. She’s not Bill Clinton.
Tremendous job getting these guys on record, David. BTW, you put up three great long posts in ten minutes this a,m., all on different subjects. How many words do you type per minute. Brilliant work.
I, for one, am afraid of where we will be led. 0 shows no leadership qualities at all, and the rest of the dims are milling around looking for another way to shore up the 1% control of the population without being too obvious because they pretend to be working for “the people.”
I am curious as to why no one is discussing creation of new jobs. Everyone seems to think that we cut taxes here, we tweak something else there, and jobs will appear? Without a plan as to how to create jobs, they will never happen. And particularly manufacturing jobs. The only way this will happen is if we, as a country, protect investment in creating those jobs from destructive off shore competition. Because if I want to open a factory and have to face not only destructive competition from imports but also my own government which is trying to drive my costs higher by, let us say, making health costs high, there is no reason to waste money and time to do it here. It is not only taxes that jack up manufacturing costs. But this seems to be the only thing we are discussing. How about looking at the full picture, and making this country have lower costs overall to compete with foreign companies.However, I am not blaming foreign countries for doing what they are doing. It is our rulers who want this to happen, since the people running this country are making a lot of money from off shoring our economy. So it is our own government that is damaging our economy. And what we are witnessing in Europe is a reflection of the same kind of thinking that is pervading this country. So we are witnessing the ultimate result of where this can lead. We are just in a slower motion fall, thinking that this can never happen here, because blah, blah, blah… But it can and it will. At this point we seem to be protected by one currency, but our currency is only paper, which we keep printing more of, with nothing backing it.
I am sure Uncle Pete Petersen will be there show Barry the way! Jamie D and Llyod the B will give BO moral support I am sure!
All Bush tax cuts need to end with a Democratic proposal for a tax cut on income up to 100k in January (the REPUGNUTS would have no option but to fall into line!!) but MOST importantly special treatment on capital gains and dividends need to end. Treat those as regular income and the world comes into focus very quickly….
Progessive DEMS need to hold the line and simply filibuster any attempt to extend the BUSH tax cuts on anyone BUT make sure the PR machine is out in full force talking about the middle class tax cut being ut forward first thing in January. Use the filibuster to our advantage FOR ONCE!!!
If President Obama is not elected, Democrats will break their necks to ram through a Grand Bargain so that they get credit from corporate America for slashing the social safety net (which I believe they’ll do regardless of the outcome of the election).
Remember, Ed Rendell “let the cat out of the bag” yesterday (Sunday, June 10th) with George Stephanopolous, when he told George, “we can do Simpson Bowles . . . after the election, clearly.”
Senators Merkley and Whitehouse are naturally going to try to tamp down the expectation that the Dems will try and cut our throats–wouldn’t want the rabble to rise up in protest!
Blue
Hahahahahahahahahahahahahahah, snort…..hahahahahahahahahah, fall out of my chair….hahahahahahahahahaha.
I’m with you Bear.
Lately, I’ve been having these nightmares where I am the bugler for Custer at Little Big Horn. Whadya think that means?????
How true. Look at Wisconsin for a perfect example of O’s leadership qualities. A last minute tweet for an important recall election.
I don’t believe Pelosi spoke out of turn with the million dollar tax cut line. She was probably pressured into saying that by the WH. They sent her out first.
We can have newcarguy be the bugler for us as we provide the background dancing for pelosi as she sings about 0′s holding the tax cut line at $1 million.
For someone calling Him (or her) self “Contrarianview” you sure seem to espouse standard right ring orthodoxy.
Without demand ramping up, there will be very little in the way of job creation. Consumers who want and can afford products and services are the real job creators. The rich people will not hire one person until they can make a profit off his labor.
The first lesson in Finance 101 is that risk equals return. Much of our current economic woes stem from attempts to achieve outsize return for no risk. Our big multinationals, the big banks, even our sports franchises try to demand a high risk return for a riskless investment. What do you think CDOs were all about? And how about luxury boxes in county-built stadiums?
The standard for a riskless return is generally defined as the return on a long government bond, currently hovering around one percent or so.
It may be possible to rationalize them as the “Bush tax cuts” when one admits that Obama’s policies are either the continuation or expansion of those implemented by Bush/Cheney. It’s a streeeeeetch, but isn’t most propaganda?
Could mean that you’re toast, and/or “toasted”.
What you’re referring to as “foreign companies” are primarily US corporations that have become global corporations that have jettisoned allegiance to their nation for increased profits. NAFTA and the FTA’s were instrumental in creating this situation.
Obama does exhibit “leadership qualities”. You can’t deny his “leadership” when it comes to authorizing murder by drone, pronouncing Bradley Manning guilty before trial, or threatening to veto NDAA unless he was given the power to disappear citizens without recourse to habeas corpus, rather than the Sec. of Defense. He also leads in lauding the intelligence and integrity of his friend Jamie Dimon. It’s just not the leadership that benefits the 99%, but it’s leadership just the same.
That’s what I was afraid of.
I was hoping it would have some sexual connotation….ya’ know bugle, blow, you catch my drift????
Remember I’m 1/16th Cherokee. NOt that that would likely matter to 5,000 Sioux Indians.
What I admire about you is your ability to find that “silver lining” around every cloud. :-)
No matter how perfectly you negotiate a deal satisfying all parties this year, that deal will be exploded by Republicans next year with their favorite new policy grenade, the debt ceiling. If you don’t defuse that grenade, don’t bother negotiating.
“…”
Not to be flippant, denial is a natural state for Dem believers to be in at this point, but how much longer can you cling to a hope for something that all the empirical evidence says is not allowed to exist anymore?
I wouldn’t forget your Cherokee heritage. How offended were you that the media reported that the birth rate for “whites” was eclipsed for the first time by “others”? They tend to forget that Native Americans were here first.
Partisanship is an unwarranted distraction. Wake up! They’re both complicit it screwing the 99% for their masters. Your comment is more appropriate to the uninformed partisans at DailyKos.
Obviously, you have no business experience. Do you think anyone is going to risk their money where they are guaranteed a loss? That is insanity. If I am investing in a plant, I want to make sure that my product is being manufactured at a competitive price. I have a similar situation right now. I have a part that I can manufacture in China for $50, and here they are asking $385. Where am I going to have it made? And these types of situations arise all the time. As much as it is difficult to deal with China, we are not given any choice. On one hand you can make it here and pay 5 to 10 times more. And at least in China you get to deal with people who really want your business, unlike here where they make you feel that you are just a nuisance. If you can find a way to control quality, you can still make more profit in China. I am not for trade, but our system makes very difficult not to move jobs overseas. But this is where the American jobs are locked up. We have to find a way to bring them here to have a successful economy, which we used to have until NAFTA and various other trade deals. Plus we have a high cost economy apart from cost of labor, such as health insurance, etc. Europeans are actually have a lower manufacturing cost because of their national health systems. Their cost is probably 1/3 of ours, and we still have 50 mil. people uninsured. Could Walmart charge prices they do (they claim they are low price) if they paid for their employees’ health insurance?
I’m confused: Does that mean that it will be ended, thus restoring full funding to SS? Or does this mean that everyone is willing to see it extended and it is “gone” in the sense of not being an issue for negotiation?
To his credit, the President reiterated his commitment at $250,000 last week.
That was a public statement by the press secretary, not a commitment. Does the game surrounding the public option ring a bell? The game around prescription drug reimportation? You can take nothing out of this president’s White House (or the mouth of his press secretary, or even his own mouth) at face value. You’re giving credit where none is actually due.
Want to know Obama’s real position? It’s being articulated by Pelosi…and Bill Clinton. Simpson-Bowles, austerity and cuts to Social Security are the agenda. Obama’s agenda. And by turn, that makes these things the Democratic agenda.
Ditto, zk–
Blue
BP–
If another piece I read earlier is accurate, it sounds like they may actually do the sane thing, and restore full funding.
Blue
Bear Country–
“I, for one, am afraid of where we will be led.”
Spot on.
Blue