Column: By Most Measures, the Deal’s a Flop
The moment called for a grand bargain. It yielded a pathetic punt.
No one should feel good about this outcome. Washington proved, as if more proof were needed, that it is good at dispensing benefits with money it doesn’t have, bad at making the hard choices it so solemnly vows to pursue.
Judging the merits of the cliff deal depends on what problem you were hoping to solve.
If the goal was to avoid inflicting immediate pain, and that’s a worthy aim, the agreement succeeded. The middle class — indeed, nearly all Americans — will not see income taxes rise. Benefits will continue for the long-term unemployed. The blunderbuss impact of across-the-board spending cuts has been postponed.
Yet the goal was, or should have been, larger: not only to prevent instant fiscal shock but to help avoid future fiscal catastrophe. By this standard, the deal was a flop.
First, it failed to raise anywhere near enough tax revenue. Recall, President Obama sought $1.6 trillion over 10 years. House Speaker John Boehner offered $800 billion. So they compromised ... on $620 billion ($737 billion with interest).
Yes, this was the first vote for a tax increase in umpty-ump years.
But the Bush tax rates are now locked in for nearly everyone, as are lower rates on capital gains and dividends and a gallingly generous, permanent estate tax break.
Second, the agreement did nothing about spending — specifically, nothing about the entitlement programs, primarily Medicare, driving the debt. Instead, that discussion was, surprise, put off.
Recall: The debt ceiling debate begat the supercommittee, which was supposed to produce $1.2 trillion in cuts. The supercommittee failed, which begat the sequester — or was supposed to.
“I will veto any effort to get rid of those automatic spending cuts to domestic and defense spending,” Obama proclaimed in November 2011, after the supercommittee fizzled. “There will be no easy offramps on this one.” With the sequester about to hit, this week’s deal featured, yes, an offramp, in the form of a two-month delay — paid for, yes, but in part with a tax gimmick that helps better-off taxpayers and ultimately loses billions of dollars.
There were two avenues available for the president and Congress in crafting a deal: big/big, maximizing both tax increases and spending cuts, and small/small. In the end, the negotiators chose the route of small/nonexistent — insufficient tax revenue coupled with no spending cuts.
Whose fault is this? You could lament a failure of presidential leadership. Where was the cliff during the campaign? What was the president’s plan — not just eliminating tax cuts for the wealthy but reforming entitlements as well?
Still, the ultimate blame lies with the House Republican caucus, which spurned two deals (the collapsed Obama-Boehner plan during the debt-ceiling fight in 2011, and the collapsed Obama-Boehner plan to avoid the cliff) that were far better, from the point of view of debt reduction, than what ended up passing.
The most effective communicator wielding the bulliest of pulpits could not prevail with a crowd this entrenched in anti-tax craziness.
History offers scant basis for optimism about the prospects for success with the coming cliffs: the postponed sequester, the return of the debt ceiling, the expiration of the continuing resolution to fund the government.
The White House theory is that these forcing mechanisms will provide the spur for additional tax revenue, obtained through tax reform, coupled with spending cuts in the form of changes to entitlement programs. Hence, if not a grand bargain, a good-enough one, is just down the road.
But where does the deal leave the administration’s leverage to obtain more in tax increases? Certainly not increased from where it was before.
The cliff just dodged represented a point of maximum power to extract new revenue. Why would an already irrationally intransigent House be more compliant under less pressure?
More likely, the administration’s bargaining power for more taxes is significantly reduced — or, looked at another way, Republicans’ ability to extract painful entitlement cuts as a price of new revenue has been significantly enhanced. Emphasis, here, on the word painful. Entitlement reform is necessary, but done with care for the most vulnerable.
The president can say all he wants that he will not negotiate over the debt ceiling. But there are more negotiations to come — over the sequester and expiring spending bills, and those discussions will be taking place during precisely the same time period as the debt-ceiling non-negotiations. If this doesn’t make you nervous, you haven’t been paying attention.