Wednesday, July 25, 2012

Cliff Diving

You've heard the term "over the cliff" from the right wing a lot this year in the rhetorical flourishes leading up to the election in November, and will likely hear more about it in the next few weeks as Congress struggles with competing visions for tax reform.
The Senate is bracing for a tax-cut showdown that is all about Democrats and Republicans showing voters their differences over taxing the well-off while accusing each other of threatening to shove the government over a fiscal cliff.

Senators planned to vote Wednesday on a $250 billion Democratic bill that would extend expiring tax cuts next year for all but the highest earners. Democrats will need 60 votes to advance the proposal, which they do not have.

It seemed unlikely that senators also would vote on a rival GOP plan that includes the best-off Americans in the tax reductions, a measure that was destined to lose.

House Speaker John Boehner, R-Ohio, was ready to push legislation through his chamber next week that closely mirrors the Senate GOP measure. Republicans there introduced their bill on Tuesday, accompanied by another measure designed to speed work next year on legislation overhauling the entire tax code.

Here's the thing: the economy is already over the cliff, and has been for years. Just ask anyone with a mortgage and a tenuous grasp on unemployment benefits and/or a job.

To sketch out the picture a little bit better here, this is the situation: Republicans want to extend the Bush tax cuts, full stop-- and even enhance some of the benefits to the wealthy. Democrats want to extend the Bush tax cuts for those families making under $250,000.

Lurking in the background is this: the Bush tax cuts will expire in full when the year ends. This would be a less painful situation for Democrats to explain to their base than for Republicans, since that means the Clinton-era tax rates would go back into effect, raising taxes on everyone but hitting the rich the hardest.

In other words, do nothing and Democrats win the battle, especially as President Obama has suggested he would veto any tax bill that cuts taxes for the wealthy. That sort of gives the Democrats a leg up in negotiations, particularly ahead of the election.

It's not complete "doom and gloom" for Republicans, either. For instance, the tax cuts won't expire until after the election, so people won't feel the impact until the dust has settled on Obama's re-election. Second, Republicans could craft a message of Democratic intransigence, which would be a far more effective platform to run on than job creation, because at the end of the day, Bush's tax cuts have netted about 2 million jobs, which includes a vast expansion of the public sector via the TSA and Homeland Security departments, as well as stimulus spending earmarked for anti-terror measures.

Obama, with stimulus spending, has already created about five times as many private sector jobs. Indeed, if it wasn't for Republicans cutting public sector jobs at the local and state level in their War on Women, unemployment would be somewhere south of 4%. But that's a hard argument to make easily. It gets complex and you know how ADHD the American public can be.

In other words, taxes on the wealthy are the lowest they've been since the Great Depression and jobs creators simply aren't. It is interesting how when Roosevelt started raising taxes on the wealthy to pay for government programs, especially the war effort, jobs started popping up like mushrooms.

The only real option the Republicans have at this point is to try to obtain a continuance of the Bush tax cuts into 2013, when it's possible, however unlikely, they might have majorities in both houses of Congress. Or even a Romney presidency, the likelihood of which is somewhere in the realm of Narnia, I suspect. And Democrats seem fairly united on this front, for once: no tax cuts for the rich. A continuance might draw the lame duck blue dog Senate Democrats along, however.
I think the real battle over the budget comes in 2013. Once he's in the second term, a president starts to see his legacy shape up, and while Obama's legacy to this point is very impressive-- removal of Gaddafi and Mubarak, the murder of Osama bin Laden, and ACA and other legislation by the bucketfulls when Dems controlled both houses-- his signature achievement might end up being a brokered deal on complete tax reform. After all, greatness as a president is only achieved with large, gaudy accomplishments. Sadly.