By Peter Baker | Published: January 1, 2013
WASHINGTON — For President Obama, the fiscal deal passed by Congress on Tuesday finally ends four years of debate with Republicans about raising tax rates on the wealthy. But it seemed to reopen a debate within his party about the nature of his leadership and his skills as a negotiator.
While Mr. Obama got most of what he sought in the agreement, he found himself under withering criticism from some in his liberal base who accused him of caving in to Republicans by not taxing the rich more. Just as Speaker John A. Boehner has been under pressure from his right, Mr. Obama faces a virtual Tea Party of the left that sees his compromise as capitulation.
The main difference is that in the Obama era, the Democratic establishment has been less influenced, or intimidated, by the left than the Republican establishment has been by the right. Liberals have not mounted sustained primary challenges to take out wayward incumbents the way conservatives have. All but three Democrats voting in the Senate and 16 in the House supported the compromise on Tuesday, even as most House Republicans balked, giving Mr. Obama more room to operate than Mr. Boehner.
But the wave of grievance from liberal activists, labor leaders and economists suggested that the uneasy truce between Mr. Obama and his base that held through the campaign season had expired now that there was no longer a threat of a Mitt Romney victory. It also offered a harbinger of the president’s next four years.
Much more at the link.
The President and his minions are seeing the fiscal cliff package as a victory, due to a few important points:
- The President got the Republicans to surrender to Democratic demands to raise taxes on the top producers. The GOP managed to raise the threshold from the President’s initial point of $200,000 for single filers/ $250,000 for married couples to $400,000/ $450,000, which helps, but the Democrats see this as an important line as having been crossed: the Republicans caved in to the Democrats’ class warfare message.
- The President won yet another year of extended unemployment compensation benefits.
- There were no cuts or adjustments made to entitlement benefits.
The professional left, as Robert Gibbs once labeled them, believe that the President gave away too much to get what he got: the threshold amount, and while the estate tax was increased from 35% to 40% — your Editor believes it should be zero — the current threshold exemption of the first $5,000,000 of estate value was retained.
Your Editor was extremely disappointed in the bill, but such disappointment was inevitable following the President’s unfortunate re-election victory. But, though they don’t seem to be touting it much right now, the Republicans won two very important victories in this legislation:
- The Social Security tax rate will return to 6.2% on individuals, meaning that there will be higher taxes on everybody, including the 47% who currently pay no income taxes.
- Other than the top marginal rate, the Bush-era tax rates have now been made permanent, including income below the margin for the top producers. This means that we will no longer be subject to automatic tax increases or the need for an Alternative Minimum Tax fix every few years, and the the federal government cannot raise taxes without the Congress having to actually vote to do so.
That second provision is the one which seems the most important to your Editor. The President’s previous budget projections1 were based on the scheduled expiration of the 2001/2003/2010 tax cuts, and had significantly lowered — though still far too high — projected deficits in the $610 to $668 billion range between FY 2014 and FY 2017. The estimated return on the increase in the top marginal rate is a mere $60 billion a year, while the expiration of the Social Security tax cut is estimated to bring in $125 billion a year.
This will force some honesty-in-deficit-projections, something we have never seen before from the Democrats. The President’s forecast for a deficit below a trillion dollars for FY 2013? That’s gone! The President’s guesstimate that the FY 2014 deficit will be down to $667.8 billion? Blown away like the smoke it always was. The initial Congressional Budget Office estimate for the fiscal impact of the bill was an increase of $3.9 trillion in the deficit over a ten year period.
And this will mean more pressure on the President and the Democrats when the debt ceiling bill is presented — we are hitting the statutory debt ceiling right now — and the postponed-for-two-months automatic sequesters arrive. The Democrats got most of what they wanted in the fiscal cliff bill, and that means that the revenue-generation level is now their baby. The Republicans may have lost on the tax increase for the most productive Americans, but now the part that they want, spending cuts, have been separated out and will happen . . . unless the Republicans lose their nerve once again.
Let me be clear on this: All the Republicans have to do is nothing to win on the debt ceiling and spending sequesters! This means that they can bargain for a better deal on this, knowing that if the Democrats don’t go along, the Republicans win anyway.
In the “Grand Bargain” that never happened, the Republicans would have agreed to tax increases on the top producers in exchange for cuts in entitlements. The pressure was on the Republican side precisely because of the automatic tax increases which would have gone into effect on New Year’s Day. Taxes were going to be increased, period, whether the Republicans compromised with the Democrats or not. With the bargain, the Republicans avoided over 60% of the tax increases the President wanted.2 That isn’t a win for conservatives, but it isn’t a total; loss, either.
Now, the pressure is on the Democrats: the sequester is going to happen, beginning at the end of February, unless Congress acts. That’s $110 billion in spending cuts, from already-appropriated levels, in the remainder of FY2013. Republicans might not like just how those spending cuts will be made — half will come from Defense — but the GOP can live with that if they must. The Republican idea is to cut back on entitlements, something the Democrats find anathema, and it is possible that the Democrats will never agree to any entitlement cuts, but the Republicans have the power now: all that they have to do is nothing, and $110 billion will get slashed from the budget. They can try to bargain for those cuts to be made in better places, and for more than the $110 billion in cuts, but they know, or at least should know, that they already have that $110 billion in cuts in the bank.
In addition, the Republicans have the debt ceiling bill as a strength. The current statutory debt ceiling is $16.394 trillion, and as of the end of the year, December 31, 2012, the national debt was already above that, at $16,432,730,050,569.12.3 President Obama has stated that he will not negotiate over the debt ceiling:
(W)hile I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed. Let me repeat: We can’t not pay bills that we’ve already incurred. If Congress refuses to give the United States government the ability to pay these bills on time, the consequences for the entire global economy would be catastrophic — far worse than the impact of a fiscal cliff.
The President will negotiate, of course, because he has to: both the debt ceiling problem and the sequester will happen at roughly the same time. Now that the automatic tax increases have been avoided, the big issue for the Republicans has gone by the board. The Republicans have the power they need, now, to force the President and the Democrats to go along, if only they have the balls to use it.
- Sister Toldjah: The #FiscalCliff deal: What to like about it, and what to hate about it
- The Pirate’s Cove: Obama: “I Will Not Negotiate Over Debt Ceiling”
- American Power: New Breed of Republicans Resists Fiscal Deal
- The Lonely Conservative: Obama Isn’t Finished Raising Taxes Karen noted that President Obama wants to increase taxes on the top producers even more, but he’s now hemmed in: with the automatic tax increases gone for good, he can’t get any tax increases unless the Congress votes for them.
- Patterico’s Pontifications: President Hypocrite JD quoted Senator Barack Hussein Obama, from 2006:
The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our government’s reckless fiscal policies. . . . Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.
We may deserve better, but we got worse, much worse.
- Mary Katherine Ham: House passes fiscal cliff deal
I’m with Phil Klein on this, that the deal is an objectively horrible one, but a relatively good one, given the options.
- See the President’s proposed FY 2013 tables, presented in neater form on THE FIRST STREET JOURNAL. ↩
- President Obama campaigned on raising $800 billion from tax increases on the wealthy; after the election, he raised the ante to $1.6 trillion. The final bill raises an estimated $600 billion. All figures are ten-year totals. ↩
- The Department of the Treasury can play some accounting games to keep within the debt ceiling legislation for about another two months. ↩