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Take the deal on tax cuts and unemployment benefits

by Eric Ferguson on December 15, 2010

It was clear in Al Franken’s statement what a tough vote this is. Amy Klobuchar said essentially the same thing. I didn’t agree with them in all particulars, but I share the conclusion.

This is a hard one, because there aren’t merely some parts we like and some parts we’d rather not have, but rather parts we feel are vital mixed with parts that are genuinely harmful. Even that assumes this is just a matter of economics, which is false. There are political implications, which are far short of clear, but even those we tend to be immediately aware of. There is a context of the last two years, the frustrations that have built up, trust that’s been damaged, and conflicts among the people making the compromise and casting the votes.

It’s a lot to sort through. I gained some clarity by asking this question: do I want to kill off the Bush tax cuts badly enough to cut off unemployment insurance extensions for people facing long-term unemployment? The answer is no.
I actually think those who come down in opposition are trying to be as pragmatic as those of us saying yes. There’s the political risk of seeming to compromise on principle, just as there’s the risk of being blamed for letting taxes rise and being the intransigent by saying no. Just as there’s a risk the next deal will be worse, there’s a risk we’re taking a lesser deal when there might be a way to get Republicans to give in on extending unemployment, or the middle class cuts alone. The point is that though I’m coming down on the side that says this is the best deal we’re going to get and we should support it, I see where opponents are coming from, and they have a strong case. It’s not an easy call.

That said, this isn’t just a matter of dropping weights on a scale to see which is heavier. We bring a lot more to our consideration, and  we need to be aware of that, and we need to be aware of what others are bringing before we start questioning motives or character. In fact, if there was ever a time when questioning motives and character is out of bounds, this would be it.

To use myself as an example, and to disclose what could absolutely be influencing my position, I have been long-term unemployed. I ran out the standard 26 weeks unemployment insurance and the 13 week extension, a cashed in my 401k, emptied my savings, sold possessions, took risks with credit just to pay bills, and reached a point where I couldn’t see how to pay the rent in a couple more months. I went through a good two years of unemployment/underemployment, lousy temp jobs and tries at freelancing, before work came steadily enough to let me hold even. I attribute my employment during this recession to good fortune rather than any merit on my part. I like to think I’m a sympathetic enough person I would understand this recession’s long-term unemployed anyway, but to be sure their plight is something I get at a gut level, not just as pure policy.

I disclose all that because I could be deciding in my gut, and then filling in the rational part. I try not to, but frankly, this is something human beings are prone to, whether we realize it or not.

“Everyone” doesn’t just mean the grassroots. I see the same process going on in Congress. Congressional Democrats seemed — this is my impression, nothing quantified — even more against it than the base, and I’m not surprised. Obama negotiated this with the Republicans, and left out the congressional Democrats. That was a mistake. That checks and balances stuff isn’t just political science theory. There’s an institutional ego that was stepped on. As strongly as senators felt it, representatives felt it more. That requires no mind reading, just listening to what they said. The House Democrats feel peed on by everyone else; the administration, the Republicans, the voters, and the Senate. Maybe especially the Senate. The health care debate was actually typical. 90% of the negotiating was in the Senate, and almost all of that was about getting just a few senators. All the smelly deals that cost so many House members their seats took place in the Senate, because it takes 60 senators to override the objection of any one senator to starting or closing debate in this dysfunctional pack of empty jackets that calls itself the world’s greatest deliberative body — not that I’m bitter. Not only has the House had to swallow bills weakened to make just a few senators happy, but they sent over a lot of bills that died. Some of them were politically risky votes, and a big price was paid. No wonder House Democrats reacted as they did to deal they weren’t part of.

Let’s not overlook the base’s trust deficit with our elected officials. Had we had some more definitive wins these past two years, we would have been more trusting when Obama announced the deal and said it was the best we could get. Likewise had conservadems in Congress not acted to thwart their own party’s top priorities, had the administration not pre-compromised repeatedly when the base was trying to say the Republicans wouldn’t negotiate in good faith, we might have been more trustful. Had the midterms not been a disaster, we would have had more trust. It didn’t help that we on the left, not just those on the right, have grown distrustful of the government in general, and come to look for abuse of power or incompetence or corruption in elected officials. If we didn’t merely support Obama and the congressional Democrats, but trusted them to handle things, we wouldn’t be here. But that trust isn’t there.

I’m even going to suggest it goes both ways. The defensiveness I saw, from Obama especially, tells me elected Democrats feel they’re getting attacked by their own supporters. There’s a trust deficit right now between Democrats at multiple levels: base/elected officials, executive/legislative, House/Senate.

Something ironic about all this is that as much as Obama screwed up by surprising the congressional Democrats, he actually got it right in terms of negotiating with the Republicans. When I said above that he “pre-compromised”, I mean he made an offer that he thought was a reasonable compromise. That works when dealing with reasonable people. It works if you’re willing to walk away with no deal. Neither was true the past couple years. The effect was Obama started in the middle and had no where to go when conservatives (including conservative Democrats, who could use Republican intransigence to demand whatever they wanted, knowing each conservative Democrats votes was needed) said no, move further right, which eventually he had to do.

This time however, he got the Republicans to agree before the compromise was announced. This is actually a change. Aside from whether we like the deal, this was unlike what he had always done before, giving them something and seeing if they’d reciprocate, which, as we know, they never did.

Looking at the compromise just in political terms, I can see why Republicans are just as torn as we are. Well, maybe not as torn, but torn nonetheless. They badly want to keep the Bush tax cuts. It might be mostly ideology, but looking over that most dreadful presidency in maybe all US history, those tax cuts are about the only accomplishment, and here us evil Democrats want to kill them. To get them though, the deficit is going to get a lot worse, and conservative critics have a point that Obama is getting his second stimulus, even though it’s tax cuts aside from the unemployment extensions.

There are traps for both sides, like having the Bush cuts expire right after the 2012 election. Congress didn’t vote before the 2010 election because blue dogs insisted on avoiding a controversial vote (how did that work out anyway?) and they’ll have exactly the same problem in 2012. Republicans had promised no more deficit spending which was always impossible, but it made the tea partiers happy. Now the extension of unemployment goes for a year, which sets a precedent. Maybe we can finally have an end to these silly short extensions. When they come up again in a year, Republicans have to decide whether to annoy their base by extending, or grant the Democrats a great issue.

In policy terms, I mentioned early on that the unemployment extensions are the key part to me. They’re merciful to people having a terrible time, and it seems worth noting that job hunts get harder the longer you’ve been out, just because fewer and fewer employers are will look at you. This is also the most stimulative part of the compromise, even though there’s so much focus on the middle class tax cuts. Honestly, I don’t care about those cuts, even though I benefit. I’d rather use the money to directly create jobs. The cuts have little stimulative effect, since some people will spend them, but those who can will save, and the higher we go up the income scale, the more likely the money is just saved. After all, we’re talking about people who aren’t rich, but at least are working.

The upper income cuts are positively harmful. Just to be clear eyed about what we’re agreeing to, these cuts worsen the deficit and create almost no jobs, if any jobs. That’s simply a function of the money going to people who have plenty of money already. In terms of the people with the multi-million incomes, the reason they don’t invest now is the lack of demand for whatever they could sell. That’s why the money isn’t going into new factories, warehouses etc. They have excess capacity already. The nigher up the income scale, the more likely the money is just going into the bank, maybe the overseas account. If it’s invested, it’s as likely to be invested overseas as here. That’s why these cuts have to die, which is why this compromise is so hard to swallow.

The reduction from the estate tax as it goes back into effect next year is just a gift to the richest families. I won’t rehash the case for the estate tax. I’ll just say this is harmful, not helpful. It’s even worse than the income tax cuts, because at least the people getting those cuts must have done something, like invested well or worked for a high salary. Cutting the estate tax just lets the winners of the birth lottery keep more. Hereditary aristocracy, here we come!

The FICA tax holiday is probably as stimulative as a tax cut gets, so in the short term, it helps. The trust funds will be held harmless since the treasury will make up the lost revenue. The concerns we have are political. We’re establishing the precedent that FICA taxes can be changed short term, and we can’t predict the results. Maybe it’s some comfort that Republicans fear that the deal means they’ll never be able to kill off the estate tax when they seemed so close. I’d still trade the tax holiday for direct job creation, but that’s not what’s in front of us.  

The other tax cuts and credits however well help. Not as much fixing the infrastructure we only got started on in the Recovery Act, not as much as avoiding layoffs by state and local governments,  but they help. At least they’re some stimulus, and they’re aimed at the bottom instead of the top.

Here’s my plea to our leaders: think longer term. I realize in the day to day of partisan politics, you take the best deal you can get. You debate what’s in front of you right now. Understood. No you need to understand that there a long-term game of setting the background. As silly as it sounds for conservatives to say tax cuts don’t affect the deficit, they’re going to keep saying it, and the public is going to, if not believe it, think it reasonable. Once this gets set in the public’s heads, all tax debates will include having to overcome this belief cuts don’t affect the deficit. Meanwhile, the word “stimulus” has turned form economic jargon into a toxic word. You’ve got to keep pounding away on the concept that refusing unemployment extensions is cruelty, that tax cuts build up debt, that only the government can stimulate (but find a less jargony word) the economy when everyone has debt and no one wants to spend. The time will come when the economy has recovered enough to allow a focus on debt and deficit, and you need to set the frame now to counter the inevitable Republican claims that raising taxes will increase the deficit and destroy jobs.

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