Kal ZoneBlog

The new bipartisanship

April 11, 2011

Here's how it works. The Democrats (Obama and Reid) make a policy proposal that they figure splits the difference between the Ds and the Rs. The Republicans counter with a policy proposal (see Paul Ryan) that's way to the right of anything they've proposed before. Then they negotiate from there, with the Tea Party wing of the Republican Party insisting on no compromise whatsoever. The final policy, arrived at through painful bipartisan negotiations, is — in spite of the fact that the Ds hold the presidency and a majority in the Senate (though not the currently-necessary supermajority) — well to the right of anything that George W. Bush could have pulled off.

Hanging over these negotiations is the threat of government shutdown, or — coming soon — government default on its debts, due to Congress's reluctance to raise the debt ceiling. The tactics of the Republicans have been compared with hostage-taking. It has been pointed out that hostage-taking is most effective when the hostage-takers are perceived to be willing to kill the hostage.

The recent budget discussions have focused on spending cuts alone, with little attention to the revenue side of the balance sheet. Way back in the foggy past, in December 2010, when the Democrats controlled the House, Senate, and executive branch, they agreed to extend the Bush tax cuts at an immediate cost of $363 billion, as Krugman recalls today. No worries about the deficit there.

But now, four months later, the deficit has become the absolutely most urgent problem confronting the nation. Social Security, for example, will in 25 years begin to experience a negative cash flow. So clearly, something must be done right now.

Meanwhile, Paul Ryan's budget policy blueprint calls for a reduction in the top income tax rate from 35% — which rate, it is clear, is a suggested donation, easily bypassed by means of perfectly legal loopholes, unless you are one of those working stiffs whose entire income is spelled out in black and white on a W2 — to 25%, under the assumption that the cut can be made "revenue neutral" by closing the loopholes.

Here's how that will play out. Obama has suggested that he wants to allow the top-bracket Bush tax cuts to expire in 2012. But his own deficit commission has called for income tax "reform" in the direction of the Ryan plan. I'm guessing there will be a bipartisan "compromise" that puts the top rate somewhere between the Bush rate and the Ryan rate, with loopholes to be closed later.

Krugman points out that even eliminating the morgage interest deduction — so beloved of those of us who have taken out huge loans to pay for our modest houses — will not be enough to make the Ryan tax cuts revenue neutral.

And so it goes. Cut revenues, then scream about the resulting deficits. The "starve the beast" strategy is well under way.

But wait. All this Republican budget cutting is, through some arcane magic, supposed to create lots of private-sector jobs and bring the economy roaring back. This is complete nonsense. You don't start a jobs recovery by laying off hundreds of thousands of public employees and forcing them to cut back on their household spending. Or by cutting aid to the unemployed.

Additionally, the private-sector jobs being created are not exactly the most desirable career positions. The two US Companies Adding The Most Employees in 2011? Home Depot and McDonald's.

I admit to being a Keynesian — I believe that government should increase spending during downturns and reduce deficits during boom times. Government spending can make up for lack of demand from cash-strapped consumers and help get the economy back on its feet.

Here again is where Obama could have done better as a negotiator. Many economists, Krugman included, said at the time that Obama's economic stimulus package, nominally $787 billion, wasn't big enough to do the job. If Obama posessed GOP-style negotiating skills, he would have asked for a much higher amount — though perhaps not more than, gasp, $1 trillion — and negotiated downward from there if necessary.

In hindsight, the economic recovery has been far from complete. Democrats would argue that the stimulus helped stop the downturn and prevented things from getting much worse. Republicans argue that stimulus spending doesn't work, period! It would be nice if Obama could argue that the stimulus wasn't entirely successful because it didn't go far enough. But he got what he asked for, and it didn't get the results he promised.

Now consider the GOP plan to cut spending at all levels of government. Will it create jobs? Many respectable economists argue that it will do the opposite — both destroy jobs and drive wages down to the point where the economy remains weak.

So when 2012 rolls around and the labor market is even weaker than it is now, how will the GOP respond? Obviously, they will say that we didn't cut government spending enough! And that taxes are still stifling the economy! So onward with more tax cuts for the rich and more austerity for the rest of us.

Obama may yet accomplish results that George W. Bush could only have dreamed of.

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