Opinion

A left turn off the fiscal cliff

Democrats, convinced they have a mandate, are about to engineer the GOP’s return to power

I can think of no easier path to a Republican resurgence than the debt solution plan put forward by that darling of the progressive left, Robert Reich. In an article for the Huffington Post, Mr. Reich outlined the following:

1) Immediately confiscate two percent of the wealth of the 600,000 wealthiest households in the country.

2) Raise federal tax rates on those earning more than $1 million per year to 1950’s rates (80-90 percent).

3) Raise federal tax rates on those earning $250,000 to $1 million to 39.6 percent.

4) Tax capital gains at the same rates as income.

5) Introduce a 0.5 percent tax on all financial transactions.

6) Cap the mortgage interest deduction at $12,000 for all households.

These moves, Mr. Reich generously estimates, could reduce our deficit spending by roughly $3 trillion over a ten year window. Throw in an unspecified hodge-podge of spending and subsidy reductions, and voìla, Reich claims, that’s a $4 trillion reduction in our deficit spending over 10 years. This, to the former Secretary of Labor, is good enough.

Never mind that such policies would cause a massive capital flight from the U.S. to the rest of the world and never achieve the $4 trillion reduction Reich imagines. Reich has failed in basic mathematics: he plans to leave the Alternative Minimum Tax untouched (and thus, through inaction, introduce a large tax increase on the middle class) or make significant cuts to Medicare, the total deficit spending estimated by the Congressional Budget Office over the next ten years is almost $10 trillion (9.975 to be exact). $4 trillion does not even cover the “fiscal cliff” that the nation presently faces, which is a $7.75 trillion difference between today’s vanishing status quo and the default policies of tomorrow.

Reich’s article isn’t a plan for the future, it’s a skewering of his own side. It’s a satirical demonstration of liberal math in action: even if we raised taxes on the wealthy to confiscatory levels in accordance with the far left’s wildest dreams, we’d still only hope to bridge around $3 trillion of the $10 trillion in red ink set to spill over the next decade. Toss in Reich’s poorly specified spending and subsidy cuts, and our public debt would still be greater than 80 percent of our GDP by 2022.

More than that, the plan put forward by Reich would be immediately unpopular. Even as they voted to keep Barack Obama in office, 63 percent of the nation’s electorate said taxes should not be raised in order to shrink the deficit, while only 33 percent said they should. Most experts would dislike it as well — the general consensus in the aftermath of the president’s debt commission has been that deficit reduction should be a mix of two parts spending cuts, one part revenue increases.

Perhaps President Obama could spin an unpopular plan to his favor, much as he did during the debt ceiling debate of 2011. Back then, John Boehner sent the president a plan that would reduce $4 trillion in debt, one third through revenue increases and two thirds through spending cuts. The president refused, sabotaged Boehner’s following attempt to negotiate with the Senate, and then managed to paint Boehner as the stubborn one.

Fool me once, shame on you, fool me twice, shame on me. Republicans are unlikely to walk into the debt negotiations as naively as they did last time. Instead of speaking to the other side first and national press second, they’re going to take a page from Obama’s book and flip the order. They’ll make sure that they look as good as possible and the president looks as bad as possible before they take any seat at a negotiation table.

Against Republicans that no longer trust the president to negotiate in good faith, at most the president should only be able to get away with a 50-50 split on taxes and spending, and probably not even that, since, as Mr. Reich has so aptly demonstrated, the most we could hope to confiscate from the well-to-do is roughly 30 percent of our impending shortfall. If the president wants more than $3 trillion in tax increases, he’s going to have to lay some of it on the middle class and let Republicans take gleeful swings at him. Unlikely.

And yet, the president might not have much of a choice in how hard of a line he draws. His base is convinced that he should demand nothing less than a left-wing plan a la Reich’s, either because they have not looked at the math of such plans, or because they think the general public is as enamored with these plans as they are.

The hand that Republican leadership is being dealt is extremely easy to play. If Democrats suggest any plan that does not reduce more than about $7.5 trillion in deficits over the next ten years, then they can accurately be criticized as adding significantly to the deficit and be stonewalled on that basis. If their plan reduces deficits by this amount or greater, but accomplishes more than about $2.5 trillion of it in tax increases, it can be lambasted as blatant class warfare per Reich, or a tax on the middle class, and in either case the GOP should immediately run ads in every district and state where a Democrat holds office over a conservative electorate. If those vulnerable Democrats refuse to vote for the plan because they want to hold their seats, then the line of attack is simple, “Look at the President’s plan — it’s so left-wing not even his own party can get behind it.” If the vulnerable Democrats vote the party line, Republicans can still block the plan in the House, and then scoop up the Democrats’ seats in the next election. And finally, if the president puts forwards a more moderate proposal, where taxes are raised and spending cut in a 1:2 or lower ratio, Republicans may yet have an opportunity to torpedo the proposition. If enough liberals vote against a moderate proposal due to their raging base, Republicans can vote tactically, endorsing the bill by and large, but letting just enough of their more-rightward members vote against it so that it fails. In that event, the worst will have come to pass for Democrats — the far left will be saddled with the blame for taking the nation off the fiscal cliff, and Democrats as a whole will appear as a party of dysfunction.

It is still possible, of course, that Democrats will put forward a moderate plan, whip their grumbling liberal members into voting for it, and give Republicans little choice but to agree to a plan that, incidentally, is more or less what Republicans were already willing to give in the previous debt negotiation. Such a move would, in the long term, be best for the party. But the more pundits like Reich stoke the expectations of the country’s far left, the harder it will be for Obama to follow such a sane course of action, and the more likely that 2013 will go down in history as the year Democrats strangled a nascent economic recovery by driving the nation off a fiscal cliff into a massive, across-the-board tax hike.

7 Comments
1
Tracy Hall over 5 years ago

I'm quite surprised and disappointed in this opinion piece. Simply calling a post/article "opinion" does not remove the responsibility to support assertions and conclusions with evidence and facts. Nor does it allow for characterizations of existing events ("...naively as they did last time...") by bald assertion in absence of analysis.

Could the author be correct in his conclusions? Might be, although I strongly disagree - but there is nothing in this article to argue with, or even discuss. I expect the Tech to present points of view - from any perspective - in a form that allows for discussion, argument and/or learning - and this disappoints on all accounts.

2
Anonymous over 5 years ago

It is inexplicable that the Tech would allow Keith Yost to devote an entire article to attack Prof. Reich without providing a citation so the readers can look up what Prof. Reich actually proposed. Opinion editors fail.

That said, Keith Yost must be the only person who thinks "the hand that Republican leadership is being dealt is extremely easy to play". Yost fails to realize that the liberal base is perfectly happy to push the conservatives off the figurative cliff, and then deal with the messy aftermath. The fiscal cliff not only lets the Bush tax cut expire, but also contains budget cuts to the Pentagon, which is another liberal winner. Knowing that, liberals are correctly concluding that the conservatives will feel more pain should the fiscal cliff happen.

The various scenarios Yost imagined are mere wishful thinking. Here is what will actually happen: the Dems will introduce a Senate bill between now and January that only extends the middle-class tax cuts, goading the GOP to filibuster it. If the GOP torpedoes the bill (which they most likely will), it will allow the Dems to go on TV telling the Americans that taxes are going up because the GOP really wants to protect the tax cuts for the rich. Will this work in Dems' favor? Possibly/possibly not. But at least for now the Dems are confident they can win this one.

3
Anonymous over 5 years ago

I'm not sure why Keith Yost is allowed to continue writing this drivel. He should stick to video game reviews.

4
Keith Yost over 5 years ago

1) If you don't think there is anything in the article to discuss, then you set a strange bar for discussion. The article has a very clearly defined thesis-- the fact that you disagree with the thesis should make the article easier to discuss, not harder.

2) Prof. Reich's article is easily googled. If you couldn't find it, it is titled: "The President's Opening Bid on a Grand Bargain: Aim High" That said, I also don't see why it wasn't included in the print version, and the only reason I dont link it here is because links dont work here.

You say liberals are quite ready to walk off the fiscal cliff, even though the word I hear around the water cooler is that most liberals are devout Keynesians, and would regard a massively contractionary fiscal policy with horror, especially one which saw taxes rise heavily on the middle class through the AMT and the expiry of the Bush Tax Cuts. What pain will conservatives feel, when Democrats are left holding the bag for large tax increases, cuts to Medicare, and a sluggish economy? Theirs is the party of deficit reduction-- if some of that comes from tax increases and cuts to the military, you'll still find many in the party happy. If it were really the case that liberals wanted to cut 7.75 trillion off the deficit and the Republicans opposed it, we wouldn't even be having this discussion. The only reason the fiscal cliff is on our plate is because it is the other way around, and the party in power cannot get what they want through inaction.

I think at the end of the day you have forgotten President Obama's promises re: deficit reduction and middle class tax cuts. I'm sure Democrats think they have the upperhand by framing the issue as "Middle class tax cuts or not." But that's just the point. It takes almost no effort by Republicans to counter the sort of framing you suggest-- they could just combine a list of Obama's promises in speeches about the deficit with the CBO's inevitable forecasts for how much the Democratic plan would cost and bag a victory.

Or they can have their cake and eat it too-- continue as many of the tax cuts as they can get in negotiations (lets say most of the Bush tax cuts the AMT fix) and then still slam Democrats for having the deficit go up trillions of dollars under their watch.

3) And yet, my opinion pieces have won national awards and my video game reviews have not. Either you lack a discerning eye for good writing, or the critics are insane.

5
Anonymous over 5 years ago

Keith Yost is quite correct to say liberals are devout Keynesians, but what he failed to tell you is that the conservatives are closet Keynesians. The fiscal cliff contains substantial cuts to the defense sector, the only sort of government spending conservatives like. Liberals are more than happy to take that away if given the chance. Make no mistake, the sequester will hurt everyone, but liberals are willing to play ball this time around. For more, read Jonathan Chait from the NY Mag:

http://nymag.com/daily/intel/2012/11/erskine-bowles-bids-to-spoil-obama-second-term.html

Keith Yost is correct that President Obama has promised deficit reduction and middle class tax cuts, but it will take Obama no effort to get these things since Republicans support them too. Obama is banking that he will get these things, and then some. Now, Keith Yost most certainly forgot that Obama has also promised higher tax rate for the wealthy (this came up at the 2nd debate), and the country voted for it. The CBO has announced that a tax hike on the wealthy will not hurt growth. All these mean the Dems talking points on GOP being the party of tax cuts for the rich are all set. Expect the Dems to go on TV telling the Americans: "We campaigned on this and won, election has consequences." "CBO says tax hike for the wealthy does not hurt growth." "Bush tax cuts for the wealthy increase the deficit."

http://www.reuters.com/article/2012/11/09/us-usa-fiscal-cbo-idUSBRE8A71D020121109

As Keith Yost has shown, I have no doubt that the GOP thinks they can win this debate too. If both sides think they can win, by all means, bring on the fiscal cliff!!

6
Steve \'88 over 5 years ago

I was dismayed to read this in the Tech. I expect to see columns, even opinion pieces, using facts and rational argument. This piece was sadly lacking in both.

Among the factual errors or misleading statements:

Reich never claims to address the $10T deficit. That is a straw man argument. He addresses the $4T goal as mentioned by Simpson-Bowles et. al. If Yost doesn't like that goal, he shouldn't blame Reich.

Why does Yost characterize Reich's estimates as "generous"? Sources, please?

Why does Yost characterize Reich's reductions as an "unspecified hodge-podge" when he calls out "special tax preferences for oil and gas, price supports for big agriculture, tax breaks and research subsidies for Big Pharma, unnecessary weapons systems for military contractors, and indirect subsidies to the biggest banks on Wall Street"? That's far more specifics than Romney gave.

What evidence does Yost have that Reich's recommendation will cause capital flight? The CRS wrote a report showing that higher taxes on the wealthy do not stifle growth. (Republicans caused it to be withheld).

Boehner's "revenue increases" consisted of sale of government assets, fee increases and higher co-pays for health care, explicitly refusing tax increases, and were only $800B, not a third of $4B. The President did not refuse the deal Yost specified, because that deal never existed.

Taxes are not confiscation. They are the price we pay for civilization. The representatives we elect as a democracy have voted for them in accordance with the law. Calling them confiscation does not change the facts, only reveals Yost's biases.

7
Trish about 5 years ago

Keith Yost, while I agree with your analysis, I disagree with your conclusion that this situation could be a win for the GOP. I think you are relying too heavily on basic economic doctrine and rational thought. Have you seen that displayed by voters lately? I haven't. One only has to look at the comments on your article or on the Riech article to see the blind allegiance to all things liberal. People parrot what they hear on the news without any analysis of what they are hearing. Look at the current news coverage of the proposed appointment of Susan Rice. One would expect a rational person to look at the charges of racism and sexism in respect to the appointment and think, "That doesn't make sense. Republicans had a black, female Secretary of State." But irrational sentiments are presented as facts by the media, swallowed whole by the listener and then cited later. I think you are giving the critical reasoning skills of the general population too much credit. We currently have just over half the population who pay taxes. Why would they care about how high taxes get? Or the deficit? They're not going to pay it, but any spending cuts could affect them. Republicans always think that if they have facts supporting their positions, then they will be fine. Democrats know that only the spin matters. And Democrats have mastered the spin. Democrats play the economy like it's a zero-sum game; that one must take from someone else in order to be better off. I really don't see the situation getting better for Republicans until the media starts reporting both sides of an issue without giving an opinion and the population becomes better able to form their own opinions. And we need tax paying voters to outweigh non-taxpayer voters. But I'm not holding my breath for that to happen any time soon. Republicans rely much too heavily on rational, intelligent voters and there simply aren't enough of them. Sometimes I think the Republicans would have been better off basing their entire campaign on a study showing that Democrats are going to outlaw reality television rather than wasting time working out solutions to the country's economic problems. They're not going to break into the Democratic strongholds by presenting workable solutions and solid exonomic plans.