Assessing the tax deal: distribution, memes and focal points, public revenue, politics.
Since one of the things I supposedly teach is the ethics of compromise, I guess I should take a crack at discussing The Deal (as far as we know about it from the Times so far).
There seem to be at least four (and a half) main issues.
1. Vulgar Rawlsianism. The Times says the President’s first priority was the extension of unemployment benefits, and I believe it.Â Obama said as much himself at his press conference yesterday.Â There’s something intuitively attractive (as well as crudely Rawlsian) about caring more about the jobless than about how much those at the top have, and some will say that this factor alone makes the deal worthwhile.Â But the deal does nothing for the ninety-niners, those who have been jobless for more than that many weeks, who are even worse off. And it does nothing to prevent the Republican House from hammering the poor on the spending side.Â So I think this is vulgar Rawlsianism indeed.
1a. Stimulus.Â I know this is the meme of the dayâ€”Obama abandoned progressivity for the sake of juicing up the economy (see Ezra Klein, David Leonhardt)â€”but I’m not going to make much of it.Â This is partly because as a non-economist I don’t have a properly qualified opinion, partly because those opinions I do tend to trust seem to think the deal will be pretty ineffective as stimulus, and partly because the question isn’t whether the deal will stimulate the economy, but whether it would stimulate the economy more than any other tax cut that Obama could have negotiated in January. After all, the GOP would hardly have left the new status quo alone, and with a new baseline of Clinton-era rates, Obama might have been in a better position to take tax cuts for the wealthiest, and estate tax capitulation, off the table, or at least force major concessions on those, through credible veto threats.Â (Some say that Obama isn’t the type to make such threatsâ€”but if so, that’s his fault.)Â Which brings up
2. Baselines, focal points, and memes. The whole point of the ten-year sunset on the Bush tax cuts (besides gaming deficit predictions) was to trap the Democrats into “raising taxes” in the future by letting them expire.Â Obama hasn’t just fallen into that trap; he’s endorsed it, by embracing the idea that letting “taxes go up increase” during a recession would be bad policy (though granted, I think he avoided the words “raise” and “increase”).Â This is very bad.Â There’s also a strong distributional baseline problem. The reason it’s a bad idea to “give everyone” tax breaks is that the next time one proposes clawing back on a progressive basis, doing so will be an “increase,” not the status quoâ€”just as happened this year.Â A superficial Pareto efficiency now prevents a certain subsetâ€”the progressive subsetâ€”of what would otherwise have been Pareto-efficient deals later.*
3. Revenue. I agree with Matt Yglesias that one big problem with America is that we’re taxed too little to support the public goods we need, and that this compromise moves us precisely in the wrong direction.Â This consideration also adds to the distributional concern: from now on, letting tax cuts expire for the rich will be “raising taxes,” while cutting programs for the poor or other public goods (yes, lack of homelessness and unnecessary death are public goods) will be “living within our means.” That said, one should realize that Matt and I are probably in the 14 percent minority that wouldn’t mind seeing all the Bush tax cuts expire, i.e. restoring the tax code of 2000.Â Our position is very unpopular, and embracing it would be an enormous political risk.
4. Politics. This is the big Kahuna.Â The President’s defenders will argue that the deal will be great politics.Â It will make Obama look moderate and conciliatory.Â (Third Way version of the argument: he ought to be moderate and conciliatory on other subjects.Â Probably too-clever-by-half double-bank progressive version: this will let him more easily say no to Boehner on other subjects.)Â And, by stimulating the economy (by stipulation), it will help Obama’s reelection chances.Â If it does that, it will help Obama defend his legislative achievementsâ€”especially the Affordable Care Act, the most important domestic policy achievement since Medicare and Medicaid, and much more important than anything likely to be accomplished in the next two yearsâ€”and do great things through executive action. Given that Obama actually has a substantial progressive legislative record to defendâ€”completely unlike Bill Clinton, who enacted moderate Republicanism and then ran on a platform of preserving it against radical Republicanismâ€”this has some force.Â A case could be made that triangulation now has a moral and political implications very different from those of triangulation in 1995-96.
Against this: (a) The deal also makes Boehner and McConnell look moderate and conciliatoryâ€”a shocking misportrayal of reality that will make it that much harder to run against their intransigence. (b) A better economy will not only help Obama but help Republicans retain the House (the Senate will flip regardless). (c) Embracing Republican frames on taxes makes it that much harder to make a coherent case for Democratic government.Â And(d) the purse is powerful: while a Republican House and Senate might not be able to repeal the ACA, they might be able to make it work so badly as to discredit it.
On balance, then, I think this is a bad and short-sighted deal.Â But it’s not quite as obviously bad, and morally disgraceful, as someâ€”commenters, fire awayâ€”will portray it.Â And my impression of its badness derives largely from my unpopular view that our taxes overall are too low.
*This is a neglected,because buried, argument in Russell Hardin’s fine Indeterminacy and Society (Princeton, 2003), pp. 9-11.
Update: Point (1) was too flip. The truth is that I’m not unemployed, nor do I move in circles where a great many people are unemployed. If I were in either of these categories, I’d probably look at the deal pretty differently. One can still oppose the deal on balance, as I do, but those of us who do should remember that the lives of some desperate people are at stake.
Second Update: Corrected to reflect the transcript of Obama’s December 6 statement: “let taxes increase for these Americans [all but the rich] right now” was his formulation for what must be avoided.