Kevin Drum - December 2010

The Tax Deal and the Election

| Thu Dec. 9, 2010 2:08 PM EST

Paul Krugman looks at Mark Zandi's estimate of the impact of the Obama tax deal and comes away worried:

Look at the Zandi estimates: they show a boost to the economy in 2011, which is then given back in 2012. So growth is actually slower in 2012 than it would be without the deal. Now, what we know from lots of political economy research — Larry Bartels is my guru on this — is that presidential elections depend, not on the state of the economy, but on whether things are getting better or worse in the year or so before the election....Put these two observations together — and what you get is that the tax-cut deal makes Obama’s reelection less likely. Let me repeat: the tax cut deal makes Obama less likely to win in 2012.

Maybe. But keep in mind a couple of things. First, Zandi's forecast is a comparison to his previous baseline, which included some of the tax cuts in the compromise plan. But the real baseline for comparison is no deal at all, and the forecast for 2012 is almost certainly better than that. Second, Zandi's numbers are for full years. But any stimulus that goes through December 2011 will continue to have an effect for a few months after that, so it's probably not until the middle of 2012 that you start to see a little bit of softness. By then it's most likely too late to have much of an effect on the election.

Take a look at the excerpt from Zandi's chart that I've posted below. Which numbers would you rather run on? Taken as a whole, the Obama tax deal numbers ("Combined Proposals") look better to me than the baseline numbers, and a lot better than the "no deal at all" numbers. After all, letting the economy stagnate and unemployment remain high for yet another year could be a death blow to Obama's standing before 2012 even starts — as would a second recession, which this deal makes much less likely. And even under the compromise deal, Zandi shows the economy continuing to improve in 2012. It's a better deal for the country and a better deal for Obama.

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Quote of the Day: Sarah Palin's Busy Life

| Thu Dec. 9, 2010 1:20 PM EST

Time magazine's cover story this week suggests that Sarah Palin is probably going to run for president even though she doesn't really seem like she's running for president. In an interview, she explains why she might throw her mooseskin cap in the ring:

"I would run because the country is more important than my ease, though I'm not necessarily living a life of ease," says Palin, who answered questions from TIME via e-mail. And in a shot at Obama's habit of playing golf during the "recovery summer," she added, "I'm very busy helping people and causes. So busy, in fact, I haven't had time to hit the links in quite a few years."

Seriously? The woman who RVed down to Hollywood to watch her daughter compete on Dancing With the Stars, and who spent the past several months shooting and editing a cheesy reality show produced by the guy who does Survivor, has the chutzpah to claim that she's just too busy with the people's business for any of that skylarking around stuff? Wow.

Anyway, it's good to see that she doesn't really want to run for president, but is willing to make the sacrifice if the nation demands it. It's a very 19th century attitude, which is oddly appropriate.

Patent Wars

| Thu Dec. 9, 2010 11:59 AM EST

The 800-pound gorilla of the patent troll business is finally going to court:

Technology companies on Wednesday received troubling news that some had feared for years: Intellectual Ventures LLC has started suing. The secretive firm co-founded by former Microsoft Corp. Chief Technology Officer Nathan Myhrvold has raised $5 billion to amass thousands of patents over the past decade.

....On Wednesday, Mr. Myhrvold's firm, unable to secure payments from nine companies, announced three patent-infringement suits. One suit names the best-known players in security software — Symantec Corp., McAfee Inc., Trend Micro Inc. and Check Point Software Technologies Ltd.

...."This is setting up perhaps the biggest battle in the history of the patent system," said Jerry Hosier, a patent attorney in Aspen, Colo. "Every company you can think of in the information technology space is a target" of Intellectual Ventures.

Felix Salmon is unhappy:

This is all predictably depressing, and poses, as I said two years ago, the single biggest risk to America’s continued leadership in technology and innovation. Intellectual Ventures might do a bit of R, but it doesn’t do any D. Instead, it just sits there, extracting rents (that’s the polite way of saying “blackmailing”) technology companies who actually want to make things.

It's impossible to say anything specific about the cases at hand without more detail about them, but in general, it's been a massive abdication of responsibility for Congress not to spend some time reforming patent law. Far too many patents are granted, they're granted for inventions that are far too trivial and far too narrow, the patent office is far too poorly staffed to deal with them properly, and patent trolls like Myhrvold are allowed to sit back and do nothing for years and then suddenly start harassing corporations long after they've built up major businesses around supposedly infringing patents. It's a disgrace, and it's bad for innovation and bad for business. For more, see Zachary Roth here and here.

Yet More Tax Deal Blogging

| Wed Dec. 8, 2010 8:18 PM EST

Blogging is a little hard today. Pretty much the only topic on people's minds is the tax cut deal, and how much can you say about that? Well, as it turns out, a little bit more! So here are two thoughts. Thought #1 is courtesy of Noam Scheiber, writing about White House political aides who say the president didn't push hard on a tax deal over the summer because the Senate just didn't have the votes:

The operatives were rightly put off by the cowardice of Senate Democrats. What they didn’t grasp was the structural advantage of a White House in framing a debate. The West Wing’s reluctance to exploit this advantage was a bitter irony given that polls showed Obama to be highly effective on the tax question as a candidate.

I just don't think that's right. The framing ability of the White House is pretty overrated in general, and it's especially overrated when the roadblock is a handful of senators who don't need much of anything from the president and can't really have their arms twisted. Maybe Obama could have done more, but this was fundamentally a problem with Congress, not the White House.

Thought #2 comes from Andrew Sabl, who takes on the question of what liberal opponents of the tax deal propose to do next if it's voted down. Andy says he doesn't really have a great answer here, but that his focus is largely on the long term, not the immediate future: "how can we change baseline expectations so as to achieve progressive outcomes in future negotiations?" Dave Dayen makes a similar point here.

I haven't thought this through carefully, but I think there's a big problem with this framing. It assumes that our weakness is mostly with negotiating tactics: Democrats need to demonstrate that they're willing to accept a whole lot of wreckage if they don't get their way, and once they've done that Republicans will realize that they have to start compromising.

But there are two problems with this. First, there's a real asymmetry between liberal and conservative goals. Liberals want active change. This means they can't just obstruct. They have to figure out a way to build a supermajority coalition for complicated legislation, and that means compromise. And everyone knows this. So compromise is baked into the cake. But conservatives, to a much larger extent, are often OK with simply preventing things from changing, either as their first best or second best position. For that, all you have to do is maintain a very simple position among a minority caucus. No real coalition building or compromise is necessary.

Second, political coalitions are simply too public to sustain an artificial bargaining posture. The problem with the Democratic caucus isn't that they negotiate badly, it's that the Democratic caucus is genuinely fractured. And again, everyone knows it. You can't pretend you're willing to go to the mat against high-end tax cuts when there are half a dozen Democratic senators who support high-end tax cuts and Republicans know there are half a dozen Democratic senators who support high-end tax cuts. To fix this, you need more liberal Democrats, not tougher leadership.

In any case, Andy's whole post is worth a read, especially his second point, which I think is a genuine and growing fracture point within the liberal coalition:

Civic republicans vs. non-republican liberals. Civic republicanism (small “r,” of course) is an awkward label for a common position: that the fundamental issue of our time is the ability of the rich, and corporations, to game the political system and prevent the rest of us from exerting true self-governance....In contrast, a non-republican liberal position is that giving material sustenance to the poor is more important than whether the rich get paid off, however regrettable and undeserved that is.

Andy describes himself as "mostly a liberal but with growing sympathies for republicanism," and I'm pretty much in the same place. Maybe a little further along, in fact, though I still find myself nearly always supporting compromise positions that genuinely help people in the here and now. The last couple of years have certainly put a dent in that attitude, though. The rich have rubbed our faces a little too hard in the fact that they simply have no interest in what's good for the country, only what's good for their own bank accounts.

Quote of the Day: DeMint on the Estate Tax

| Wed Dec. 8, 2010 4:12 PM EST

Sen. Jim DeMint is opposed to Obama's tax deal. No surprise there. But what is this all about?

"It raises taxes, it raises the death tax. I don't think we needed to negotiate that aspect of this thing away."

Huh? It raises the death tax? DeMint is talking here about the estate tax, which, admittedly, is zero at the moment thanks to bizarre tax law writing from Republicans. But in three weeks it automatically reverts to an exemption of $1 million and a rate of 55% on everything above that level. That's pretty high. Or maybe the proper point of comparison is the 2009 level: a $3.5 million exemption and a 45% rate.

Well, compare away. The Obama deal sets the exemption at $5 million and the rate at 35%. That's lower than the most recent rate and much lower than the rate that will shortly go into effect if there's no tax deal. So what is DeMint's problem?

I dunno. Does he honestly think that maybe Dems will eventually negotiate a rate of zero if he just holds out long enough? Hell, they're in open revolt over the current deal, let alone one that repeals the estate tax completely. What are they smoking down in South Carolina these days?

Bad News on DADT

| Wed Dec. 8, 2010 1:52 PM EST

Democrats need at least a couple of Republican votes to overcome a filibuster and repeal DADT during the lame duck session. One of those votes is Susan Collins, but it looks like she's decided to bail. Steve Benen reports:

In a nutshell, Collins is asking Democratic leaders for unlimited debate on the defense bill. Reid, in turn, is offering Collins a compromise: votes on 10 separate amendments, seven of which would come from Republicans, three of which would come from Democrats. Collins has responded that this isn't good enough, and she'll refuse to let the Senate vote up or down on the legislation.

It's worth emphasizing that Collins just isn't being reasonable. Looking back over the last couple of decades, a total of 10 amendments is entirely routine for this defense authorization bill, and is actually far more than the number of amendments considered most of the time.

Why not just give in and tell Collins she can have unlimited debate? Because Republicans really are desperate to kill the legislation, and the most far-right members will keep offering unrelated amendments indefinitely, running out the clock on the lame-duck session, and derailing the bill.

If this is really what's happening, it's a pretty sobering reminder of the power of the Republican right wing. Collins is sincerely in favor of repealing DADT, she's not up for reelection until 2014, and she represents a moderate state. But obviously something has scared the hell out of her. She knows unlimited debate isn't practical, and she knows that repealing DADT in the next session of Congress is all but impossible. So she's killing this for years.

I wonder who or what got to her?

UPDATE: Greg Sargent reports further:

A spokesman for Collins flatly denies she asked Reid for unlimited debate. Rather, the spokesman says, Collins has pointed out to Reid that the average number of days spent debating previous defense authorization bills has been 11 days, with an average of 14 or so amendments considered. Collins has asked Reid to come up with a comparable offer, the spokesman says.

Hmmm. Greg also reports that Reid has upped his offer to 15 amendments, so it's not clear what the problem is.

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Herding Cats

| Wed Dec. 8, 2010 1:40 PM EST

I never know quite how seriously to take Politico-style inside gossip pieces, but this one from Glenn Thrush strikes a chord:

Obama’s advisers insist he didn’t go out of his way to pick a fight with fellow Democrats when he cut his highly controversial deal with Republicans to temporarily extend all Bush-era tax cuts earlier this week. But if the deal served to distance Obama not only from them, but the entire partisan culture of Washington, all the better, they say. Differentiating Obama from congressional Democrats “was a positive byproduct” of the tax cut deal, a person close to Obama told Politico.

....One administration official told Politico that Obama was so dispirited after his Nov. 18th meeting with the Democratic leadership that he decided, then and there, to place his faith in direct talks with Senate Minority Leader Mitch McConnell (R-Ky.). “The point is the House and Senate [leadership] has proven they are incapable of getting things done,” the official said.

And here's the dueling anonymous quote from Capitol Hill:

Several senior congressional Democratic staffers told Politico they are tired of Obama and his aides blaming them for failing to muster the votes to block an extension for the rich....“When they want to fight, they know how to fight. When they want to cave, they know how to blame others,” said a disgusted senior Democratic congressional leadership aide.

Politico and its ilk thrive on controversy, and I imagine this piece probably overstates things. But if I were forced to choose, I think I'd side with Obama on this one. I mean, if congressional Dems were able to get him a better deal, how likely is it that Obama would reject it just because he wants to "distance himself" from Congress? That just doesn't ring true. Congressional Dems simply haven't shown any spine or any negotiating ability on tax issues. Maybe Obama bears some of the blame for that, but you can only lead a party that's willing to be led in the first place. The Democratic caucus doesn't seem to be.

Examining the Payroll Tax Cut

| Wed Dec. 8, 2010 12:22 PM EST

Part of Obama's tax deal is a cut of two percentage points in the employee share of Social Security taxes. Employers will continue to pay 6.2% of wages, but starting January 1 employees will pay only 4.2%. Greg Mankiw argues that this is backward:

An alternative would have been to reduce the employer's share of the payroll tax, at least to some degree. Given a sticky wage, this policy would have reduced the cost of hiring and, to the extent labor demand curves slope downward, increased employment. It would also have increased business cash-flow and, to the extent that firms are cash-constrained, increased business investment.

I have a hard time seeing this. If the tax cut were permanent, it might have the effect he describes. But a temporary 12-month reduction would, I think, have virtually no effect on hiring decisions as long as consumer demand stays weak. Conversely, the employee-side tax cut will probably have some genuine stimulative effect. It won't be huge since much of the money will be saved, but it will be something.

None of this is to suggest that this is why the cut was structured the way it was. I have no doubt that it was mostly done this way so that lots of registered voters would notice an increase in their take-home pay. Still, given the small and temporary nature of the cut, it really does seem as though it's probably more effective on the employee side than the employer side.

POSTSCRIPT: And just a note, since I think a few people are still unaware of this: the payroll tax cut is being paid for out of the general fund, so it has no effect on the future solvency of Social Security's trust fund.

Overhauling the Tax System

| Wed Dec. 8, 2010 2:15 AM EST

Niklas Blanchard says I was thinking too small in my previous post. Instead of just telling the left to embark on a campaign to sell the public on a more progressive income tax, I should have used Obama's tax deal as the launching pad for a complete overhaul of the tax system:

I view this very compromise as a golden opportunity for the left to reinvent themselves with regard to taxation, win an adjacent political battle (and a dear progressive goal), and wrap it all up in a bow that not only makes our government funding more efficient, but lowers tax rates for virtually everyone. And that is to begin a campaign of gradually removing the income tax, in exchange for a revenue-neutral tax on carbon, which would be gradually instituted as the income tax was phased out.

In addition, offer an automatic stabilization policy of payroll tax cuts [] in exchange for a sharply more progressive payroll tax, used to fund Social Security and Medicare/caid. Institute a progressive VAT or GST with a standard deduction of the first $25,000 of income for all taxpayers, and expand a means tested EITC, as well....At the end of the line, offer a land tax in exchange for really whatever the right happens to want for it. Repeal of the estate tax, maybe?

That would be a real “progressive” package that would end the debate regarding the level of income taxation (from any source; labour, capital, etc). It would simplify our tax code, and get rid of ridiculous inefficiencies like the mortgage income tax deduction. More importantly, contrary to our current tax code, the new consumption-based funding of government would encourage a greater savings and investment equilibrium.

I don't usually bother with blue sky stuff like this since it obviously has no chance of being enacted in my lifetime. Just for the record, though, I might be persuaded to support something along these lines if it were paired up with genuine national healthcare. I could live with a more efficient but (slightly) less progressive tax code, but only if it funded more progressive social programs.

On a more realistic but still Blanchardesque level, however, I continue to think that there actually ought to be a makeable deal to eliminate the corporate income tax and replace it with, say, a carbon tax. The corporate income tax, after all, is an absolute sink of inefficiency and corruption, every congressman's favorite playground for paying off campaign donors and rewarding favored industry groups. And reforming it won't work: we did that in 1986 and it took little more than a decade to degenerate back to its usual foul state. So why not just get rid of it? Corporations would love it, Republicans would love it, it would put lots of tax lawyers out of work, and replacing it with a carbon tax would be great for the planet. What's not to like? There are lots of enforcement details that would have to be worked out, but nothing insurmountable. This honestly seems like something that should be doable.

Swallowing the Deal

| Wed Dec. 8, 2010 12:26 AM EST

Comrade Rotwang, whose lefty credentials are unassailable, says that treating tax cuts for the rich as a hill to die for is an indication that liberalism in America has become "withered and puny." Sure, Obama's deal may not be the greatest thing since sliced bread, but its five provisions are all worthwhile:

The rationale for all of these is to stimulate spending, by individuals both rich and poor, by workers, and by business firms. We desperately need such spending now.

Some features will be more effective than others, but all will be more effective than doing nothing. The rich may not spend much of their tax cut, but they will spend something. We could all think of alternatives that would be more effective still. A different president and congress might have spent the past 18 months making a case for such measures, but that was not to be. Nobody has explained how any politically-viable alternatives would be available now....At the end of the day, a small tax cut for "the rich" (small in terms of the incomes of the beneficiaries, small in terms of the overall deficit) should not be a big progressive issue. There are much bigger fish to fry, and we need the stimulus now.

Comrade Baker agrees. For myself, I'd just say that the spectacle of lefties blaming Obama for the current mess is a little hard to take. I have my own problems with both Obama's negotiating prowess and his distressing eagerness to lash out at his own base, but the time when Obama had some leverage to get a better deal was over the summer. His position at the time was clear, but congressional Dems caved in to their centrist and Blue Dog factions and failed to even bring up a tax plan for a vote. This made Democratic disunity so obvious that Obama simply had no credible negotiating position left after the midterms. He needed a deal during the lame duck session, and Republicans knew perfectly well that his own party wouldn't support a hard line. Under the circumstances, he did about as well as he could have.

In the end, this is the second stimulus we all wanted. It's not a very efficient stimulus, and it sadly caves into the conservative snake oil that the sum total of fiscal policy is tax cuts, but them's the breaks. Anyone who doesn't like it needs to spend the next two years persuading the public not just to tell pollsters they don't like tax cuts for the rich, but to actually vote out of office anyone who supports tax cuts for the rich. That's the only way we'll win the replay of this battle in 2012.

And now let's move on. With taxes out of the way, it's time to repeal DADT.