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December 19, 2012

Learned Behavior: Obama’s Backtrack on Tax Rates, Debt Limit Empowered Republicans

Posted in: Uncategorized

Obama blinked

The White House announced they would veto “Plan B,” John Boehner’s gambit to pass a bill extending the Bush-era tax rtes for all earners on the first $1 million of income. And Nancy Pelosi said that Boehner had better have 218 votes for such a bill, since House Democrats won’t provide any. Of course, Boehner is milking Pelosi’s prior support for a millionaire’s bracket, a key tactical error from her, in putting his bill on the floor.

But the damage has already been done. Media reports are calling the Boehner Plan B an effort to squeeze the President, even though it does no such thing, since tax rates represent the most predictable part of the entire fiscal slope conversation. If nothing gets done, all of the Bush-era tax rates go up, and then a tax cut bill can pass at whatever level the White House prefers. Republicans have said as much. That would be a tax cut bill, just as Boehner’s Plan B is a tax cut bill from current law. (Buzzfeed, straying from their normal diet of recycling old quotes and cat pictures, is getting way too cute here. Of course a bill that extends tax rates beyond their expiration date is a tax cut.) And it would be as hard to resist for the GOP as the extension of the payroll tax cut, which Obama successfully got last year simply by standing firm.

But the President didn’t stand firm. He blinked and the Republican know it, and they will use that to get a much better deal out of all this.

A few weeks ago, the Obama administration was firm that they wouldn’t budge on tax rates for income above $250,000 and that they wouldn’t budge on the debt ceiling. They’ve since budged on both. Republicans increasingly think the White House will concede more now, and that if they don’t concede more now they’ll definitely give Republicans a better deal if threatened with debt default. Whether or not that’s true, it pulls Republicans — and Boehner — to the right, as it makes it harder for Boehner to argue for a compromise now.

Two things can be true: the President could simply want social insurance cuts, to burnish his legacy or because he seriously feels those programs are unsustainable or for whatever reason that you can prove with several years’ worth of quotes and actions. And it could also be true that, in the zeal to “make a deal,” the Administration is giving up as much as humanly possible, threatening things that they may not have even wanted to threaten at the outset of the negotiation. There’s no question that Republicans feel empowered to sit back and wait for Obama to come to them. He has in the past, and that’s precisely the dynamic of this negotiation.

Maybe Republicans will look a gift horse in the mouth again, as they did in 2011, and maybe this whole thing will blow up. But on the numbers, the two sides aren’t all that far apart. You can see a a path to agreement here. And that path will lead directly to the right, because the President gave up leverage he may have never wanted to hold.


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