Why Democrats Are Losing The Tax Cut Debate
Democrats are losing the debate over the extension of the Bush tax cuts, but when you look at the playing field it seems pretty clear that that they never had a chance.
As I noted yesterday, the Democrats are clearly losing the debate over extension of the Bush tax cuts despite the fact that polls indicate that a majority of the public supports their position. In today’s New York Times, Nate Silver attempts to explain why:
There are essentially three possible outcomes in the debate: first, that the tax cuts are extended for everyone; second, that they are extended for no one; and third, that they are extended only below some threshold, most likely $250,000 for couples (although alternatives like $500,000 and $1 million have been proposed).
The way in which Republicans would rank these outcomes is clear. Their first preference would be to extend the tax cuts for everyone. But presumably, when push comes to shove, they’d prefer to extend some of the tax cuts — on incomes below $250,000 — instead of ending all of them.
It’s a little bit more difficult to identify the preferences of Democrats, because there are more divisions within the party: between the president and Congress, between moderate Democrats and liberal ones, between Democrats who are electorally vulnerable and those who aren’t. It is safe to say, however, that on balance, the Democrats would prefer to extend the tax cuts only below the $250,000 threshold, and not above it.
So, essentially, the Republicans have forced the Democrats into a game of political poker where it’s almost impossible to win. Thanks to yesterday’s votes in the Senate there are basically two options left, either the tax cuts are extended for everyone or they’re extended for no one. Republicans are betting that the Democrats don’t have the guts to actually let the tax cuts expire for everyone so they’re willing to call their bluff and force a vote for an across-the-board extension:
One consequence of the tax cuts lapsing for everyone, particularly if it extended the economic slump, is that voters could get very angry at incumbent politicians of all kinds, and would be inclined to vote many of them out of office, regardless of political party. Perhaps, after all the dust settled, Democrats would wind up in a stronger position than Republicans. (Although that seems unlikely; since the Democrats are the party that will have an incumbent president up for re-election — as well as two-thirds of the incumbent Senators — they still have more to lose, on balance, in 2012.) Even if this were true, however, it would not benefit incumbent politicians — and they are the ones who have a vote.
So suppose that Democrats don’t really want to end all of the tax cuts. Could they make a credible bluff to the contrary? The question answers itself. If Democrats aren’t willing to follow through on the bluff, then ultimately, it isn’t much of a bluff. And it will be called by an opponent skilled at the art of legislative poker, as Republicans are.
David Leonhardt continues the poker analogy, and argues that the rather obvious economic effect of allowing tax cuts to go up across the board make it impossible for the Democrats to credibly take a position that allows them to win the political fight:
If everyone’s taxes go up — and Congress enacts no new legislation to create jobs — it’s very likely to have a negative effect on the economy. Just the tax cuts for the rich are unlikely to have a big effect one way or the other. (As I’ve pointed out before, the economy lost jobs for two years after President Bush signed the 2001 tax cuts, and economic growth during his presidency was weak.) But an across-the-board tax increase on all households doesn’t seem like a very good prescription for an economy as troubled as the current one.
Who do you think is likely to receive more blame if the economy remains weak for another year or so – the top Democrat in Washington (Mr. Obama) or the top Republican (John Boehner)?
From my conversations with people on Capitol Hill and in the administration, I think both Republicans and Democrats — many of them, at least — have conducted a thought exercise very much like the one above. That’s why the Republicans are so confident now and the Democrats are in retreat.
To end where I started, the economic case for extending the high-end Bush tax cuts is not an impressive one. Democrats — including Mr. Obama, Harry Reid, Nancy Pelosi and their aides — had their chance to win on this issue. But that chance seems have to come and gone. Kenny Rogers had something to say on this issue.
In short, then, Democrats were dealt a bad hand. If we were having this debate about extending the Bush tax cuts in the middle of an economic boom rather than in the middle of a sluggish recovery that seems like it could come to an end any day, then it’s probable that the dynamics would be different. Arguing against cutting taxes is hard enough, it’s even harder when simple economics tells you that not implementing them doesn’t make economic sense. So, when it came to the debate over the Bush tax cuts, the Democrats never really had a a chance.