Thursday, July 19, 2012

The Republicans won't Blink before the Election

There's been lots of breathless reporting this week about the "fiscal cliff". In 6 months, the Bush Tax Cuts expire just as the budget sequestration begins. People wonder if the two parties will be able to work out a compromise on taxes and spending before the twin axes fall. 

It can't happen before the election.

Six months from now, the country is scheduled to "fall off a fiscal cliff". The Bush Tax Cuts will expire, resulting in a $3.8 trillion dollar tax blow to our barely ambulatory economy. At the same time, $1.2 Trillion dollars in automatic budget cuts will go into effect, starving the economy further. It is important to realize that these things will happen without any additional action by Congress. Congress must act to prevent them. And for the last 2 years, Congress (particularly the Senate) has seemed unable to act.

It is worth remembering how we got to this point... in 2010, voter turnout changed drastically from what it had been in 2008. The electorate was older and whiter. Many in this demographic were energized by a Tea Party movement more radical in its ideology than establishment Republicans in Congress. This mobilization of a more extreme slice of the electorate became  evident in the primaries, when a number of incumbent members of the Republican Conference were defeated by challengers claiming to represent the Tea Party.

Tea Party nominees prevented the Republicans from taking the Senate, as Tea Party candidates proved to be unelectable at the State level. But with the lower level of scrutiny and vetting faced by House candidates, Tea Party amateurs managed to win, the Republicans took the House and the House became much more conservative.

(This and unlabeled images from Wikimedia Commons)

The Lame Duck session between the election and the creation of the new Congress left a very small window for the Democratic majority Congress (if one counts tools of the Plutocracy like Ben Nelson and Blanche Lincoln) to enact any final legislation. But the Republicans vowed to block all legislation unless the Bush Tax Cuts were extended. Democrats wanted to partially extend them as well, but given the absolute ass-whipping the GOP was giving the Dems on the deficit, Dems were insisting on additional revenue, as well. Specifically, they wanted to end the cuts for those earning more than $250k per year. 

The Republicans wouldn't go for it. 

The Democrats came back with a proposal for ending the cuts only for people earning more than $1 million per year. 

The Republicans wouldn't go for it

Finally, to avoid a major tax increase while the economy was still recovering from the Bush Collapse, and to keep President Obama's campaign promise not to raise taxes on the Middle-Class...

the tax cut was extended for ALL income groups. (I will leave the topic of the GOP's utter hypocritical dishonesty on the topic of the deficit to Dr. Krugman.)

But the extension, like the original cuts, had an expiration date...

in two years. To expire in January of '13.

The month following the tax extension, the new Congress was sworn in. The Tea Party represents the exact same element of conservative populism formerly represented by the John Birch Society and the Moral Majority. The first thing these self-educated "constitutionalists" did was pick a fight over the debt-ceiling increase. The resulting power struggle over the normally routine measure came within a few days of forcing the nation's default and caused a (meaningless, as it turned out) downgrade in our credit rating.

The price of getting these newly elected Republican extremists to permit the debt ceiling increase was the creation of a "Supercommittee", composed of key members of both parties, from both chambers, who would meet with the goal of reducing the budget deficit. And to insure that committee would carry out on its mandate, REALLY draconian budget cuts were scheduled to go into effect, automatically... 

in January of 2013.

(This is a Mayan Calendar. I am told the metaphor is obscure. Sorry.)

The supercommittee failed to agree on anything of course. Over Republican opposition to raising any revenue, whatsoever. And we are confronted with the prospect of massive tax increases taking place at the same time as massive spending cuts, in an economy stuck above 8% unemployment, and Europe sliding into recession ahead of us.

In January of 2013.

The timing on these deadlines is intentional. Both these fights got scored as a couple of short-term "wins" for the Republicans. The GOP got an extension of the tax cuts for their wealthy constituents, and the Tea Party Freshman got to pose as implacable deficit hawks. Even supporters of the President were accusing him of caving in.

But almost immediately smart people noticed what the Republicans had given away to get their wins. They were going to have to defend keeping those tax cuts for millionaires during a Presidential campaign. And half of those draconian budget cuts caused by the Supercommittee are coming out of Defense. NONE of them are coming out of Social Security or Medicaid.

People have speculated (and been mocked for it) that the President has been engaged in "3 Dimensional Chess" with the Republicans, suckering them into turning themselves into campaign fodder for the Obama Reelection Campaign. 

So at the moment, the Republicans find themselves in an uncomfortable position. The Defense lobby is raising hell with their pet congressmen on the Armed Services Committees. Defense contractors are looking at a MAJOR revenue hit beginning in 2013 if the cuts Republicans agreed to actually go through. But Defense Hawks in Congress can't reverse the cuts without Democratic cooperation. Meanwhile the whole country, including Republican campaign donors are looking at a major tax increase. Which Republicans agreed to.

And thus nothing can happen until after the election. If the Republicans win the Presidency and the Senate, their problems are solved. The very first thing they'll do is end the filibuster.  Then, they'll reset the tax rates, probably cutting them for Mitt's friends at the country club. And they'll simply legislate away the defense cuts. Deficits are NEVER a problem when Republicans generate them.

If the Republicans win the Senate and not the Presidency, then President Obama has left himself in a very good negotiating position; no conceivable Republican victory leaves him in office and also elects a Senate that can over-ride his vetoes. The tax plan that replaces the expiration of the Bush rates will have to be to his liking, or he can just do nothing and watch all the rates go back to the Clinton levels. That solves the deficit "problem" over-night. He can save a lot of his signature programs from the Republican axe by threatening to allow the defense cuts to go through. If the Democrats hold the Senate, which is tough but perhaps do-able...

all of that negotiating leverage can be brought to bear on the House. 

Until we know what the balance of power is going to be AFTER the election, though...

no policy can be made on taxes OR spending.