Senate Republicans have signaled that they are prepared to stop most any legislation during the lame duck session unless Democrats cave in and extend the Bush tax cuts. It appears that they’re about to get their wish.
White House officials and Congressional Republicans said Sunday they were closing in on a deal to temporarily continue the Bush-era tax cuts at all income levels, while bitterly frustrated Democratic Congressional leaders began exploring whether they would have the votes for such a package.
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Rather than extending the tax rates only on income described by Democrats as middle class — up to $250,000 a year for couples and $200,000 for individuals — the deal would also keep the rates for higher earners, probably for two years. In return, Republicans said they would probably agree to extend jobless aid for the long-term unemployed.
Senior Democrats on Sunday said that they were resigned to defeat in the highly charged tax debate, and they voiced dismay.
Democrats aren’t happy, of course, but this was inevitable. Republicans have enough votes to force concessions or play out the string until the new Congress is seated a month from now, at which time they’ll have a majority in the House and half a dozen additional seats in the Senate.
Paul Krugman, for one, thinks the Democrats ought not go along.
hile raising taxes when unemployment is high is a bad thing, there are worse things. And a cold, hard look at the consequences of giving in to the G.O.P. now suggests that saying no, and letting the Bush tax cuts expire on schedule, is the lesser of two evils.
Bear in mind that Republicans want to make those tax cuts permanent. They might agree to a two- or three-year extension — but only because they believe that this would set up the conditions for a permanent extension later. And they may well be right: if tax-cut blackmail works now, why shouldn’t it work again later?
America, however, cannot afford to make those cuts permanent. We’re talking about almost $4 trillion in lost revenue just over the next decade; over the next 75 years, the revenue loss would be more than three times the entire projected Social Security shortfall. So giving in to Republican demands would mean risking a major fiscal crisis — a crisis that could be resolved only by making savage cuts in federal spending.
But, as Nate Silver points out, the politics of this would be a disaster for Democrats. While it’s true that raising taxes on high earners is popular — after all, the vast majority of people would get something for nothing — the short term impact on the economy of Krugman’s position would be horrendous. And elections are in the short term (every two years) not the long term.
Now, Krugman is right on the shell game. It was obvious to anyone paying attention that the “temporary” tax cuts under Bush were designed to make those new levels the baseline from which debate could be held. Despite the fact that, as a technical matter, the Clinton tax rates are the “normal” tax levels and are set to resume as the Bush cuts “expire” with the calendar year, the effect is a tax hike on January 1.
What Bush and company couldn’t have predicted is that the start and sunset of the cuts would both take place during post-bubble recessions. So, the Republicans not only have the standard “the Democrats want to raise your taxes” and “class warfare” rhetoric to fall back on but the more legitimate “it would be irresponsible to raise taxes when the economy is already struggling” argument. So, the Democrats are in an especially tenuous situation.
Beyond that, however, Krugman’s calculating the effects of today’s tax policy 75 years into the future is inane. Even if the Republicans got concession to make the Bush tax cuts “permanent,” the fact of the matter is that no Congress can tie the hands of a future Congress. If taxes have to be raised — or spending in other areas cut! — to pay for popular social programs down the road, the policy debate will take place in a different atmosphere.
