Kevin Drum

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?

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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.

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.

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Adding Up the Tax Cuts

| Tue Dec. 7, 2010 6:31 PM EST

Ezra Klein adds up the tax cut numbers:

If you look at the numbers alone, the tax cut deal looks to have robbed Republicans blind. The GOP got around $95 billion in tax cuts for wealthy Americans and $30 billion in estate tax cuts. Democrats got $120 billion in payroll-tax cuts, $40 billion in refundable tax credits (Earned Income Tax Credit, Child Tax Credit and education tax credits), $56 billion in unemployment insurance, and, depending on how you count it, about $180 billion (two-year cost) or $30 billion (10-year cost) in new tax incentives for businesses to invest.

So that's $125 billion for Republicans and $216 billion for Democrats (not counting the business investment stuff). Yay Democrats!

Or not. As Ezra says later, quoting a senior administration official, "Republicans were extremely eager to get benefits for the top tenth of a percent of Americans." And when you're dealing with such a tiny number of people, a small pot of money goes way, way further than a bigger pot divided up among the vast majority.

Over the past 30 years the wages of most Americans have grown more slowly than the rate of overall economic growth. The difference isn't much: maybe half a percentage point or so. It's easy not to notice, or to handwave away if you do decide to notice it. But over 30 years, that adds up to a lot of money if it all gets funneled to the top 1%. This is fundamental to understanding what's happened to the American economy in recent decades: a little bit of money from a large number of people becomes a very large amount of money when it gets channeled into the bank accounts of a tiny number of wealthy rentiers.

So is $216 billion vs. $125 billion a victory for the common man? Of course not. It means most of us get a few hundred dollars while the rich get hundreds of thousands or even millions each. The rich are willing to make that deal every day. Wouldn't you?

UPDATE: The chart above, from CAP's Michael Linden, illustrates the whole thing graphically.

Obama Goes Medieval on the Left

| Tue Dec. 7, 2010 5:41 PM EST

Damn. I skipped Obama's press conference today, but I guess that was a big mistake. If my Twitter feed is anything to go by, progressive heads were exploding all over the intertubes. Here is Philip Klein's summary:

Obama reserved some of his harshest criticism for liberals, who he scolded for being "sanctimonious" purists who wouldn't be able to accomplish anything if they got their way. To drive home his point, he complained about the way liberals behaved during the health care debate, sounding like an unappreciated lover.

"Somehow this notion that we are willing to compromise too much reminds me of the debate we had during health care," Obama said. "This is the public option debate all over again. So I pass a signature piece of legislation where I finally get health care for all Americans, something that Democrats have been fighting for for 100 years, but because there was a provision in there that they didn't get that would have affected maybe a couple million people, even though we got health insurance for 30 million people, and the potential for lower premiums for 100 million people that somehow that was a sign of weakness and compromise. Now if that's the standard against which we are measuring success or core principles, then let's face it, we will never get anything done. People will have the satisfaction of having a purist position, and no victories for the American people. And we will be able to feel good about ourselves and sanctimonious about ourselves about how good our intentions are, how tough we are."

At the same time, Obama also compared negotiating with Republicans to negotiating with hostage takers, and if I had more conservatives in my Twitter feed I'd probably be hearing a few winger heads exploding too.

Still, it's obvious that Obama is more personally stung by criticism from the left than from the right. His outburst about "purist" liberals was considerably more impassioned than his rather clinical description of Republican "hostage takers." In one sense, this isn't surprising: you expect the opposition to show no mercy and that hardens you to it. You really don't expect it from your putative allies. But in another sense it is surprising: even if Obama thinks his progressive critics are off base, he must know by now how they're going to react to compromises like yesterday's tax cut deal. So why was he apparently so unprepared for this? Why deliberately make things worse with his base during a press conference?

Answer 1: he just lost his temper a bit. It happens to everyone. Answer 2: it was all precisely calculated. He's convinced that Democrats lost in November because of defections from independents, not liberals, so he's trying to do everything he can to distance himself from the left and win back the center. My guess is that #1 accounts for 10% of his performance and #2 accounts for 90%. After all, we've seen this movie before in 1994.

Anyway, here's a few predictions. (1) Purist liberals better get used to rhetoric like this. I think we're going to see more of it. (2) Even so, everyone needs to give up on the idea of Obama being challenged by anyone substantial in the 2012 primary. Even Democrats aren't that suicidal. (3) Hated or not, Obama's tax deal is fairly good for the economy and it quite likely cements his reelection chances. If GDP growth is even in the neighborhood of 3% a year from now, I don't think he's beatable. (4) Looking at American politics from a 100,000-foot level, conservatives have won. Programmatic liberalism is essentially dead for a good long time, and small bore stuff is probably the best we can hope for over the next 10-20 years — though social liberalism will continue to make steady advances. I reserve judgment on whose fault that is.

POSTSCRIPT: Several people think #4 could use a wee bit of further explanation. Agreed! The short explanation is here. The longer version you'll have to wait a while for. It's coming in a couple of months or so. (Print lead times are a bitch.....)

What Will the EPA Do Next?

| Tue Dec. 7, 2010 3:50 PM EST

With Republicans running the House, says Brad Plumer, new environmental legislation is dead. So whatever happens is only going to happen via EPA rulemaking. But that's not going so well. For example, take a new rule that would limit toxic pollution from industrial boilers and solid-waste incinerators:

This isn't just some abstract tree-hugging measure; it would arguably do more for public health than any section of Obamacare....(All told, the rule would have cost an estimated $6.4 billion each year while delivering between $138 billion and $334 billion in annual health benefits — not a bad deal.) But the affected industries all griped that the costs were way too burdensome and buried the EPA in angry comments.

Now, EPA officials say they're seeking a delay because all those comments made them realize that the air-toxics rule could be structured more carefully. That's plausible. But it's also true that the agency has been under excruciating political pressure of late. Nearly 100 lawmakers have complained about the boiler rules. The likely new head of the House energy committee, Fred Upton, has bashed the standards and is promising to drag EPA head Lisa Jackson in for enhanced interrogation. (Upton's concern? The Council of Industrial Boiler Owners thinks the costs will be far greater than EPA is projecting. It's worth noting that, historically, pollution rules tend to be cheaper than even the EPA expects.) And House Republicans will have a say in the agency's budget going forward, so Jackson can't just ignore them.

Yeah, I think it's safe to say that industry complaints about the cost of this new regulation will, as usual, turn out to be wildly overblown. And Jackson's caution in the face of a mountain of industry comments might simply be an attempt to make sure the new rule withstands court challenges after it's implemented.

More broadly, though, Brad suggests that this rule is a harbinger: there's plenty of other stuff coming down the pike, and EPA's willingness to tackle the boiler rules aggressively will give us a good idea of whether they're willing to tackle the rest of their agenda aggressively too. "It's unclear," he says, "just how hard the agency is willing to battle." Read the rest for more.

Have Yourself A Merry Little Christmas

| Tue Dec. 7, 2010 1:57 PM EST

A bit of holiday twittering today:

I realize this is possibly the least important topic of all time. But I'm just curious if anyone else reacts badly to "Have Yourself A Merry Little Christmas"? I know it's a beloved classic, I know it brings tears to the eyes of the audience in the movie, and I even know that my interpretation, ripped out of the context of the movie, barely even makes sense. And yet....the phrase "merry little Christmas" has always struck me as unbearably condescending. Like "cute little thing" or "something for the little people." It makes me wince every time I hear it.

Anyone else ever feel this way? Or is it just some bizarre Drumism?