It’s Day 24, and the Republicans still have no plan. Daniel Gross asks, Who are the chumps now?
Fiscal cliff hostage situation. Day 24. A lot happened. But nothing happened. At Treasury, Secretary Tim Geithner, who, like his predecessor Hank Paulson, wears a training watch, went through a rigorous cross-fit routine and mainlined Red Bull in preparation for his upcoming Sunday Show Marathon. On the hill, Senate Minority Leader Mitch McConnell LOL’ed at the president’s proposal, which includes lots of tax increases as well as Gene Sperling’s holiday policy wish list. CNBC’s Rick Santelli, reacting to the flood of companies issuing dividends before tax rates rise, conducted what seemed to be an on-air audition for Fox Business Network. The Daily Beast’s fiscal cliff countdown clock went live.
Speaker of the House Rep. John Boehner (R-OH) speaks during a news conference November 30, 2012 on Capitol Hill in Washington, DC. (Alex Wong / Getty Images)
House Speaker John Boehner staged a brief press conference and pronounced a “stalemate” and that the two parties were “almost nowhere.”
It’s much too early to declare failure, however.
The fiscal cliff hostage crisis is soon to enter its fourth week. But really, the talks about ransoming the hostage haven’t even begun. Typically in a hostage situation, the party holding the hostage sets out its demands. President Obama has finally done that, with Treasury Secretary Geithner personally presenting the plans to Congressional Republicans on Thursday. There’s nothing surprising about the Republicans’ dismissive response.
There is something surprising, however, about the Republicans’ failure to offer an alternative. To be sure, there has been a well-documented, and sudden outbreak of real-keeping among Congressional Republicans, with dozens of legislators abandoning Grover Norquist’s no-tax pledge and acknowledging the need for more revenues. But the guys who want to liberate the tax cuts being held hostage have yet to propose an offer.
And the leadership still does not seem to grasp what is happening. This is not August 2011, or August 2012. The choice before McConnell and Boehner is not between the really unattractive proposal President Obama is offering and their preferred solution, which is the status quo on taxes plus huge cuts in discretionary spending and immediate action on entitlements. Rather, the choice is between what the President is offering—i.e. lots of tax increases paired with small spending cuts and very modest entitlement reform—and the 24-pack of whoopass that the fiscal cliff will deliver in about five weeks: much larger tax increases, plus much larger spending cuts, and no entitlement reform whatsoever.
Yes, President Obama wants to avoid the fiscal cliff. But he also wants to avoid being made to look like a chump, as repeatedly happened in his first term. And so rather than make a proposal and then respond to a stiff arm with a better offer, he is refusing to negotiate with himself. Instead of compromising on his initial offer—and hoping that meeting the Republicans half way with an initial offer will help bring them to the table—he went the other way. The president moved his goalpost further to the left. And rather than try to play an inside game and issue pleas for comity and compromise from the White House, he’s taking his popularity on the road.
The conservatives calling for a dive off the fiscal cliff can be divided into two camps:
Group 1 is following the old Nixon "madman" strategy. In Nixon's words to his aide Bob Haldeman: "I want the North Vietnamese to believe that I've reached the point that I might do anything to stop the war. We'll just slip the word to them that for God's sake, you know Nixon is obsessed about communism. We can't restrain him when he's angry, and he has his hand on the nuclear button, and Ho Chi Minh himself will be in Paris in two days begging for peace."
This is the approach now being pushed by Charles Krauthammer and Keith Hennessy: If you look crazy enough to do anything, you might get better terms than perhaps strictly justified by the objective correlatives of power.
Group 2 is following the Richard Wagner "Götterdämmerung" strategy: destroying all about them in rage and despair. This is the approach urged by Brent Bozell and now today by Neil Patel and Tucker Cameron.
Here's the wrinkle: In the first weeks of the negotiations, Group 1 and Group 2 share a common interest. The more influential Group 2 looks within the GOP, the more sway Group 1 will have in budget negotiations with the Democrats. The problem is, that Group 2 could become so genuinely influential that it actually makes negotiations impossible. That's what nearly happened in the debt ceiling debate in the summer of 2011. Fortunately, cooler heads prevailed back then. But back then, Republicans were in a tactically optimistic mood. They believed they were likely to sweep the elections of November 2012. Today, the Republican mood is much bleaker. Will that enhance the power of the cooler heads? Or detract?
With neither side in the budget standoff willing to make the tough decisions needed to avert a fiscal catastrophe, maybe what Washington needs is a bungee cliff dive.
Now that the elections are over, the fighting has really begun. Washington is waiting anxiously while legislators from both parties and the Obama administration try to decide what to do about the “fiscal cliff.” Going over the cliff would suck more than $600 billion worth of fiscal stimulus out of the economy in 2013 through a combination of tax increases and spending cuts. That would be disastrous for everyone, including, one assumes, the politicians who lead us over the edge. And yet, a peek into the abyss might show our politicians, like nothing else can, exactly why they need to get serious about putting the nation’s finances on firmer ground.
Speaker of the House Rep. John Boehner (L) and Senate Majority Leader Sen. Harry Reid (R) speak during a news conference on Capitol Hill, Nov. 29, 2012. (Alex Wong / Getty Images)
Even a brief dive—a bungee jump, if you will—would be scary indeed. In its latest projection, the Congressional Budget Office predicts that the post-cliff economy would shrink for the first half of the year, at an annualized pace of 1.3 percent. While recovery should come in late summer, growth for the whole year would be a meager half a percentage point. That’s a pretty grim picture given the still-sluggish state of the economy.
And yet, our fiscal situation is so crazy that a few analysts have begun suggesting that maybe, just maybe, going over the fiscal cliff is our best hope. Bruce Bartlett, a former Reagan administration official and latter-day critic of the GOP’s profligate spending during the administration of George W. Bush, recently wrote for The New York Times website about “The Fiscal Cliff Opportunity.” Peter Schiff, the head of Euro Pacific Capital, has been even blunter. The biggest risk is not that “we go over this phony fiscal cliff,” Schiff said in a recent interview. “It’s [that] the government cancels the spending cuts, cancels the tax hikes,… [and] instead we end up going over the real fiscal cliff further down the road.”
“In fact,” he added, “the real fiscal cliff comes when our creditors want their money back and we don’t have it.”
He may be right. The amount of debt held by the public has increased from $4.9 trillion in the beginning of 2007 to $11.5 trillion today—from 36 percent of GDP to 75 percent of GDP. The last time our debt-to-GDP ratio was this high, Harry Truman was president.
While of course a lot of that was loaded on during the financial crisis, our debt is still increasing by about $2 billion a day. With interest rates so low, that much debt is not currently a problem. But if interest rates increased just 2 percent, we’d have to pay an additional $230 billion every year in interest costs. If they go up to 5 percent, which would be closer to their historical norm, we’ll be on the hook for half a trillion dollars a year—on top of our ballooning bills for baby-boomer retirements.
Creditors are fully aware of this dismal math; they’re lending to us mostly because other countries are even worse. But how long will we be able to keep borrowing $1 trillion a year?
Trading stocks on whether there’s a deal by January 1 is a fool’s errand. In the long run, the market just doesn’t care about that stuff, writes Daniel Gross.
Thursday marked Day 23 of the Fiscal-Cliff Hostage Situation. Vanquished Republican presidential candidate Mitt Romney came to lunch at the White House. House Speaker John Boehner and Senate Majority Leader Harry Reid stuck out their tongues at one another. The hostages—the Bush-era tax rates on income, capital gains, and dividends, and the defense and other budgets subject to sequestration— remained locked up in Washington. And in New York, investors reacted poorly to the news. “Stock gains dented over twists in budget talks,” as the MSN Money headline put it.
Let’s step back for a minute.
If you’re trading stocks based on whether you think taxes will go up on January 1, 2013, or whether it seems more or less likely that Congress and the Obama administration will strike some grand bargain on entitlements and taxes in the next few days—well, you’re not too sharp. And if you’re in turn basing those decisions on what public officials are saying about the prospects of such a deal, then you’re kind of a dope.
Stock trading is a fool’s game to begin with. Very few investors can beat the market. The market is dominated by insane, hyperactive machines that frequently don’t know what they are doing. Professionals mostly fail at beating the indices. And a bunch of those who do, we’re learning, are clumsy cheaters. (Pro tip: if you’re IM’ing about insider trading, don’t use phrases like “I don’t want to go jail.”)
Watching and reacting to what Congress people say about the cliff negotiations and the prospects of a deal won’t give you an edge—regardless of what the headline writers say. Why? Well, the overwhelming majority of stuff that elected officials say to the public is bulls--t. What they say has no bearing—frequently on the truth, or on whether a deal will get done. When someone says they’re optimistic about something about to happen, they could be genuinely optimistic—or they could be full of it.
Also, investors don’t seem to be very good at figuring out who really matters in these debates. The other day, CNBC’s Michele Caruso-Cabrera told a Democratic House member, Raul Grijalva, that his remarks against concessions on entitlements were making the stock market go down. Grijalva is a member of the minority in the House; most investors had likely never heard of him before his appearance.
More broadly, the market—and many of those who interpret the market’s mind on our behalf—have an extremely simplistic and wrongheaded view of what is good for it. The conventional investing wisdom assumes that a deal—any deal—to avert the fiscal cliff will be good for stocks and the economy at large. That may be true. It may also not be true. In fact, I suspect that at the end of the day the people who are agitating most ardently for a big deal are going to be very disappointed. Compared with a few weeks ago, we are much less likely to have major entitlement reform and more likely to have large tax increases on the rich, with marginal rates rising, taxes on capital gains and dividends rising, and the rich losing some of their cherished deductions. The investor class has been begging for a resolution. The resolution they’re likely to get could be a sharp slap in the face.
Will that be good for stocks in 2013 and beyond? Who knows? In fact, hiking taxes significantly on investors may not influence the markets at all. My colleagues in the politico-financial industrial complex vastly, vastly overvalue the relation of government policy and marginal tax rates to asset prices in the stock market—especially my colleagues on the right side of the aisle.
To pressure Congress on tax debate.
Letter-writing campaigns are officially a thing of the past. President Obama is calling on Americans to use Twitter as a device to pressure Congress into saving middle-class tax cuts. “If there’s one thing that I’ve learned, when the American people speak loudly enough, lo and behold, Congress listens,” he said Wednesday. The president urged the middle class to tweet their support of his proposal not to raise taxes on families earning less than $250,000, with a specific hash-tag: #My2K. “If we get this wrong, the economy is going to go south,” the president said.
Taxes on dividends may go up on January 1. And companies are shoveling dividends out to their shareholders before the taxman comes calling.
It’s finally happening. Barack Obama’s redistributive policies that soak the rich are forcing America’s companies to…give money back to their investors? Although the end result of the fiscal cliff negotiation is still uncertain, one thing is clear: tax rates on dividends, which now max out at 15 percent, are certainly not going to down. They may stay the same. But they also are likely to rise—even to double. With American companies engorged on cash and easy access to credit, that means the hottest Christmas gift to the American investor is big special dividend.
Patrons play slot machines at Sheldon Adelson's Sands Casino Resort Bethlehem in Bethlehem, Pennsylvania. (Mike Mergen, Bloomberg / Getty Images)
In the weeks since the election, Costco, Las Vegas Sands, Dillard’s, Ethan Allan, Brown-Forman (the beverage company behind Jack Daniels), and ADT have all recently announced special dividends. Walmart announced it would move up its regular first quarter dividend to December 27, just in time to dodge the tax-man. So far, according to the market research firm Markit, 103 companies have announced special dividends in the fourth quarter; 66 of them have done so since the election. Markit also projects that at least 20 more companies will declare special dividends before the end of the year.
The dividend-gushing companies operate in a range of industries: retail, gambling, spirits, furniture. But many of them do share something in common: substantial family and insider holdings. That is to say that ownership is disproportionately concentrated in a group of managers, or in a group of family members who exert influence over the company. “In cases where insider holdings are concentrated in the board and executive levels, there exists not only the incentive, but also the capability to declare special dividends,” said Chaitanya Gohil, Vice President of Markit Dividend Research.
There is probably no better example of this trend than Sheldon Adelson, the chairman and CEO of the casino giant Las Vegas Sands who was a prolific backer of Republican candidates in 2012. Adelson and his wife, who together control more than half the company, will likely earn some $1.2 billion from the company’s special dividend payout of about $2.3 billion.
Members of the Brown family, who control most of Brown-Forman’s voting stock (the CEO, however, is from outside the family), will get around $234 million from the dividend the company is paying. Brown-Forman, according to its most recent quarterly filings with the SEC, has $361.5 million in cash on its balance sheet. The ratings agency Fitch projects that the roughly $850 million payout will be debt-financed, meaning that the company would have to borrow money (likely at rock-bottom interest rates) to get money to its shareholders, a subset of whom own the shares that actually let them control the company. Both Las Vegas Sands and Brown-Forman also announced increases in their regular scheduled dividends going forward.
But it’s not just the insiders who are giving themselves piles of cash as soon as they can. Costco, the retail giant and liberal darling (co-founder Jim Sinegal spoke at the Democratic National Convention) announced Wednesday that it will be giving back around $3 billion to its shareholders in a special $7 a share dividend. In a statement announcing the payout, Costco Chief Financial Officer Richard Galanti said the dividend was part of “our latest effort in returning capital to our shareholders” and that the retailer’s “strong balance sheet and favorable access to the credit markets allow us to provide shareholders with this dividend.” The company didn’t mention the prospect of tax rates rising, but it did make sure to note that the dividend is “to be paid before the end of the calendar year.”
The rash of dividend payouts is a great case study of the way public policy can affect corporate decision-making. One of the explicit goals of the Federal Reserve’s quantitative easing policy was to bring down interest rates on corporate bonds and thus enable more corporate borrowing and investment. These low rates and possibility of a large jump in dividend taxes make a large, one-time dividend irresistible to companies who want to do right by their shareholders. Thanks to the Fed, money is close to free for profitable companies. Thanks to the fiscal cliff, companies have a huge incentive to pay out big dividends now. The low-interest rates it has engineered may not exactly be leading to as much, say, hiring and factory building as the Fed would like. But the dividends to large shareholders will provide ready stimulus to the asset management, vacation home, and boat industries.
President Obama invited the ‘business community’ to talk about their interests in the fiscal cliff negotiations. Daniel Gross says good luck with that—there’s no way to find a common goal in that group.
It’s fiscal hostage situation crisis Day 22. And we have seen some movement. Rep. Tom Cole, a prominent House conservative, has called for his colleagues to make a deal right now to keep marginal tax rates low for the bottom 98 percent of Americans. (In time, this will come to be known as The Cole Capitulation.) Meanwhile, President Obama met with middle-class people at the White House, and said he was optimistic a deal could be done before Christmas. Oh, and a gaggle of CEOs came to the White House. Here’s the full list.
Chief executive officer of Goldman Sachs Lloyd Blankfein, center, talks to reporters at the U.S. Capitol in Washington, D.C on Nov. 28, 2012. (Jay Mallin, Bloomberg / Getty Images )
It’s unclear why President Obama is making such a big deal about meeting with corporate bigwigs. If you’re trying to drum up public support for your bargaining position, how useful is it to have Goldman Sachs CEO Lloyd Blankfein on your side? Still, President Obama clearly benefits by having prominent members of the “business community” agitating for a quick deal. It puts pressure on Republicans to come to the table.
But beyond promulgating a generic desire for a deal, it’s not clear that the business community can help the two sides get to yes. The business community is a community the way that Europe is. In theory, they have a lot in common; in reality, the constituents are extremely parochial, and occasionally go to war with one another. Some observers argue that it this concern for particular interests—rather than a desire for the general welfare—that explains the appearance at the White House of so many blue-chip executives. “The business community figures that taxes are going up, and they figure that if they come out and say there should be a deal, they will be spared,” said Dan Mitchell, senior fellow at the Cato Institute.
In theory, these CEOs all need and want the U.S. economy to grow to prosper. (Although truth be told, many of them don’t. One of the participants in the meeting is Muhtar Kent, CEO of Coca-Cola, which last year sold only 22 percent of its drinks volume in North America.)
When they get involved in public policy, CEOs have to balance concern over their personal situation (all these CEOs would get hit hard by an expiration of the tax cuts), concern for the national economy, and concern for the impact on the companies they run.
Defense contractors, for example, couldn’t care less about the payroll tax cut, which is probably toast. For them, the sequester—the automatic, blunt cuts in defense spending that kick in starting Jan. 1—must be averted at any cost. By contrast, a retailer like Macy’s, which derives most of its revenue from sales of stuff to middle-income Americans, cares not a whit about the sequester. It is more concerned about the payroll tax cut disappearing and marginal rates rising on lower-income earners. (Macy’s CEO Terry Lundgren was among the group of CEOs at the White House.) The White House helpfully spelled out the potential damage to retailers in a paper it released this week: “The CEA estimates that consumers could spend nearly $200 billion less than they otherwise would have in 2013 just because of higher taxes.”
Those who live and die in the global capital markets, like Goldman Sachs (CEO Lloyd Blankfein was on the roster), won’t get too exorcised about the prospect of middle-class Americans paying more taxes. But with the average Goldman employee making $367,056 in 2011, the prospect of higher marginal rates on high earners is terrifying. And the fact that taxes on capital gains and dividends are set to double in January will certainly impact the company’s ability to profit.
As the fiscal cliff approaches, some GOP stalwarts are talking about raising taxes and soft-pedaling abortion. Howard Kurtz on the party’s rebranding effort.
The winds of moderation seem to be blowing through the Republican Party.
Lindsey Graham is among the GOP senators who say they are prepared to set aside Grover Norquist. (Win McNamee / Getty Images (FILE))
OK, maybe it’s just a breeze, and a gentle one at that. But after four years of stuck-in-cement opposition, the Party of No is sounding like the Beatles singing “We Can Work It Out.”
What a difference a White House walloping makes. Now even the party’s biggest stalwarts are saying the Republicans face demographic disaster unless they overhaul their image.
“It’s called the new reality,” former Republican chairman Michael Steele tells me. “We can no longer afford to marginalize ourselves as a party.” The GOP has gone “off the rails,” he says. “We are becoming increasingly irrelevant to the political conversation.”
If so, Republicans are trying to push their way back into that dialogue. Here’s Sen. John McCain on abortion, telling Fox News Sunday that the party should “leave the issue alone.” McCain says he’s “proud” of his anti-abortion-rights stance, “but if someone disagrees with me, I respect your views.” This from a party that has longed vowed to back a constitutional amendment to ban abortion.
Here’s one GOP senator after another—Lindsey Graham, Bob Corker, Saxby Chambliss—saying he no longer feels bound by the Grover Norquist pledge against voting for tax increases. As Chambliss put it, “I care too much about my country—I care a lot more about it than I do about Grover Norquist.”
On Monday, Sen. Bob Corker said he would forgo Norquist's pledge against tax increases.
As the fiscal cliff nears, some Republicans are backing off their anti-tax orthodoxy—but they’re still living in the past. Daniel Gross on why the concessions aren't good enough.
It’s Day 21 of the Fiscal Cliff Hostage Situation.
Three weeks after his reelection, President Obama is showing no signs that he’s willing to release the Bush-era tax cuts from his grasp. In New York and elsewhere, CEOs are ordering up their private jets to ferry them to Washington for a White House meeting scheduled on Wednesday. Obama is hosting small-business owners too. Policy wonks are crunching numbers on potential solutions. And Republicans are getting antsy.
(From left to right) Sen. Lindsey Graham of South Carolina, Rep. Peter King of New York and Sen. Saxby Chambliss of Georgia said that they would consider abandoning Grove Norquist's pledge as the fiscal cliff approaches. (Getty Images (2) ; AFP / Getty Images)
Indeed, the signs of desperation are rising. For 20 years, ever since President George H.W. Bush signed on to a deal to raise taxes, the orthodoxy has held that a Republican elected official can never talk about, accede to, wink at, or vote for a piece of legislation that would raise tax rates or tax revenues. The chief enforcer of this ideological rectitude has been Grover Norquist, president of Americans for Tax Reform, who has forced generations of Republicans to sign his no-tax pledge. Violators have faced often-fatal primary challenges.
But pledges can’t release a hostage. And three weeks into the crisis, elected Republicans are finally waking up to the reality that if no evasive action is taken, tax rates on income, capital gains, and dividends will rise in just five weeks. Averting such an unwanted effect requires reaching a deal with President Obama and the Democrats. And reaching such a deal requires acknowledging a need for more revenues.
Dan Gross talks to Reuters' Felix Salmon on what really happens if we go over the ledge.
It took a while, but Republicans have started to throw Commissar Norquist under the bus. Last Wednesday, on the eve of Thanksgiving, Sen. Saxby Chambliss of Georgia said “times have changed significantly, and I care more about my country than I do about a 20-year-old pledge.” Appearing on ABC’s This Week on Sunday, Sen. Lindsey Graham of South Carolina said he would be willing to violate the pledge “for the good of the country.” Rep. Peter King of New York echoed the sentiment.
Effectively, some Republicans seem to be telling Norquist and the anti-tax absolutists that the game is over. If Republicans want to avoid the huge tax increases that will ensue when the U.S. flies off the fiscal cliff, they’ll have to be active participants in some tax increases. Sen. Bob Corker of Tennessee, has explicitly tried to become part of the solution by proposing in the Washington Post a 242-page plan that would reduce the deficit by $4.5 trillion through spending cuts, changes to entitlements, and capping tax deductions for the wealthy.
Utility stocks are already being pushed over the fiscal cliff.
Investors and analysts are looking for signs that the advent of the fiscal cliff is affecting the economy and the markets. The chart above shows one obvious effect.
The stocks of utility companies occupy a particular niche in the investing world. People don’t buy the shares of Con Edison and Exelon in the hope that they will double or become the next Apple. They buy them because they generate steady profits and pay steady dividends. They are expected to produce income rather than capital gains. For the last several years, that income has been lightly taxed. The Bush tax cuts reduced the tax rates on dividends to a maximum of 15 percent.
Come Jan 1, however, if no deal is made, tax rates on dividends will revert to their pre-Bush levels. They will be taxed as ordinary income. So a wealthy person in the 33 percent income-tax bracket would have to pay a 33 percent tax on stock dividends. That would sharply reduce the after-tax value of the dividends. And, because these stocks are valued in part on the basis of the after-tax dividends they throw off, the fiscal cliff would appear to be bad news for utility stocks.
The chart above shows that since the middle of October, when the smart money coalesced around President Obama’s reelection and started to fret over the survival of the Bush tax cuts, utility stocks have been on the decline. The Dow Jones Utility Average has dropped almost seven percent since Oct. 10, while the Dow as a whole has declined a bit under 3 percent. That’s not quite falling off a cliff. But it’s still a significant gap.
Republicans are finally bucking Grover Norquist and bending on taxes. Now Democrats must do their part and give on entitlement reform to reach a bipartisan deal to avoid the fiscal cliff, says John Avlon.
The good news is that Republicans are starting to recognize the need to break with Grover Norquist and his anti-tax pledge. But that’s only part of the way toward a genuinely balanced bipartisan deal to avoid the fiscal cliff.
AP Photo (2)
Listen carefully to what one of the principled defectors, Sen. Lindsey Graham (R-S.C.) said Sunday on ABC’s This Week: “I will violate the pledge, long story short, for the good of the country, only if Democrats will do entitlement reform.”
Got that? Democrats are going to have to step up with serious entitlement reforms to get a balanced plan done.
Luckily, there is a well-worn path from two years of failed negotiations—Bowles-Simpson, the Gang of Six, and the Obama-Boehner grand bargain—that include specific proposals backed by Democrats on entitlement reform. These will be the basis for finding common ground going forward.
The postelection debate to date has mostly been about Republicans slowly coming to grips with the need for tax-revenue increases. But with divided government, spending cuts and entitlement reforms also will have to be part of the prescription.
The GOP reluctantly learned this election that ideological extremism and obstruction is not a winning formula. It will be willing to negotiate to an extent far greater than in the past. The challenge for President Obama will be to provide second-term substance to his first-term style as a reasonable man in an unreasonable time. It is the price of leadership.
On 'This Week' Sunday, Lindsey Graham said he'd forgo Norquist's pledge.
As fiscal cliff discussions heat up, one thing that both sides seem to agree on is that the domestic discretionary budget is going to be cut dramatically. How dramatically, they disagree on, and that remains to be seen. As usual, the people who need the government the most are the ones who are going to come out of this the biggest losers.
These are the people who lose nearly every battle in Washington because no one is representing them. The Democrats sort of do, but even then, Democrats have to "balance" these people's interests against the interests of the institutions that finance their campaigns. The Republican Party, of course, has open contempt for these people.
I say all this by way of introducing you to the symposium in the most recent edition of the journal I edit, Democracy, and specifically a symposium we call "The Forgotten 40 Percent." Undertaken with the generous help of the Corporation for Enterprise Development, or CFED, the package looks at many aspects of life for the poor and near-poor and the working class and asks what we can do better. You can read it here.
The field is called asset-building, and one can think of it, if one prefers, in civil-rights terms. Of course beneficiaries of such policies are hardly only black or Latino. But helping poorer people own homes and save more, and protecting them from predatory lenders and such is clearly an economic justice battle made all the more urgent by the fact that in the financial meltdown, so many of these folks lost whatever meager wealth they had.
I learned a lot of things editing this package--for example, about what it's like not to have a normal bank to rely on and to have to resort to payday lenders. I learned a great deal from a really interesting article in the package on the special economic burdens placed on people who live in manufactured homes (trailer parks, although these days the houses are a lot nicer).
Tomorrow morning, Democracy and CFED are hosting an even at CFED's offices to discuss the issues raised in the symposium. CFED's Andrea Levere will introduce Oregon Democratic Senator Jeff Merkley, who will deliver remarks, after which there will be a panel with three symposium contributors, moderated by Jim Tankersley of The National Journal.
It's booked, but there is a webinar, to which I'm told 300 people have subscribed, which strikes me as a highly respectable number. If you'd like to watch, sign up here. Thanks.
Obama and the Democrats have treated entitlement reform like an untouchable third rail, but new polls indicate that the electorate is out in front of both parties when it comes to demanding real improvements. By Eleanor Clift.
The voters gave President Obama a second term, and now he’s counting on them to help him resolve the fiscal cliff in a responsible way. You’d think people would be weary of hearing about an economic issue that so far is all talk and no action. But a Pew Research Center survey found that more Americans followed the debate over the fiscal cliff more closely than they watched the sex, lies, and emails that led to the resignation of CIA Director David Petraeus, a testament to the public’s ability to sort through what most affects their own lives and pocketbooks.
In a Wednesday, Nov. 7, 2012 file photo, President Barack Obama pauses as he speaks at the election night party at McCormick Place, in Chicago. President Barack Obama will make his first public comments Friday, Nov. 9, 2012 since the victory speech after his re-election, using his speech to set the tone for upcoming tense talks with congressional Republicans on avoiding the so-called "fiscal cliff" — a combination of deep spending cuts and the expiration of Bush-era tax cuts that will take effect Jan. 1 and threaten to pull the country back into recession. (Carolyn Kaster / AP Photo)
Obama spent the better part of this year campaigning for a balanced approach to bring down the deficit. That means reining in the country’s most cherished entitlement programs—Social Security, Medicare, and Medicaid—in addition to raising taxes on the top 2 percent of households. A poll commissioned by Third Way, a moderate Democratic group, found that the coalition that elected Obama overwhelmingly backs a compromise that would include entitlement reform, a third rail that Democrats have long avoided touching.
The numbers reflect a new awareness even among liberals that the programs they feel are essential must be part of any grand compromise reached by Obama and the Republicans. Eighty-three percent of Obama voters say that reducing the deficit must be an important priority, and 79 percent say it would be better for Congress to address Social Security and Medicare than to do nothing.
Only 39 percent of Obama voters are concerned that the president will compromise too much with Republicans, which gives the president more flexibility from the voters than he is getting from the interest groups that represent them in Washington. The voters got the message that compromise is essential, but in Washington, the election results are being read by many Democrats as evidence that Obama should hold firm and resist any meaningful changes to Social Security, Medicare, and Medicaid.
“There is a discussion among the progressive groups in D.C. about the meaning of the election and whether it would be a ‘betrayal’ to touch entitlements,” says Jim Kessler, senior vice president for policy at Third Way. “According to this poll, these groups do not speak for the people who elected the president.”
The expectation is that the real faceoff is between Obama and the Republicans over taxes, but the president faces an equally daunting challenge to convince liberal groups that they too will have to yield. AFSCME, SEIU, and NEA—three powerful unions—launched an ad campaign this week in several states aimed at key senators calling for “Jobs Not Cuts,” urging that Medicare, Medicaid, and federal funds for education be protected. Much of this is standard procedure whenever any government program is threatened. The difference this time is that the stakes are higher. “You’ve got all the responsible parties seeking to get a deal,” says Kessler, “and then you’ve got groups on the left and right trying to scuttle it.”
That’s where Third Way comes in as the only Democratic leaning group that is actively working toward a major deal, or grand bargain. Beginning in August, Kessler and his colleagues visited 100 congressional offices on Capitol Hill, 90 Democrats and 10 Republicans, making the case for increased tax revenue, spending cuts, and entitlement reform. The individual members are not named but on the Republican side, says Kessler, they were “the usual suspects,” the handful of lawmakers who have worked across the aisle, and their sentiment before the election was, “If Obama wins, we’re licked on taxes.”
Been too crazed stockpiling vittles for Thanksgiving to learn anything about this fiscal cliff we’re careening toward? Impress the relatives with tidbits from our guide on everything from the sequester to the supercommittee.
Sorry, I’ve been too busy buying wine for Thursday to pay much attention to this “fiscal cliff” everyone talks about. I need to stay warm camping out for Walmart’s 8 p.m. opening. So, what is it?
The “fiscal cliff” isn’t just one thing, it’s a bunch of tax rates and government spending levels that are scheduled to change on Jan. 1, 2013.
Federal Reserve Chairman Ben Bernanke addresses the Economic Club of New York on Nov. 20, 2012, in New York City. In his speech he urged Congress to act to avoid the so-called "fiscal cliff" of severe budget cuts and tax hikes in 2013, which he said would throw the U.S. economy back into recession. (John Moore / Getty Images)
Umm, OK. What?
It’s easier to think of it as coming in two main parts. The first is the expiration of the Bush tax cuts. These tax cuts brought income and investment taxes down for everyone, with some of the biggest cuts coming for high-earners. The most contentious tax cuts that Democrats want to get rid off were for income and investment income at the top. The Bush tax cuts brought down the marginal rate for the highest earners from 39.6 percent to 35 percent. The maximum tax rate for income from long-term capital gains rate was brought down to 15 percent from 20 percent, and the tax rate on dividends dropped to 15 percent.
Back when they were passed in 2001 and 2003, they included a sunset provision, meaning they would expire at the end of 2010. President Obama cut a deal with congressional Republicans to extend the tax cuts for another two years in exchange for extended unemployment benefits and ++a 2 percentage-point reduction in the payroll tax++ [http://www.thedailybeast.com/articles/2012/11/15/the-fiscal-cliff-s-first-victim.html]. That extension, along with the payroll tax reduction, is scheduled to expire at the end of the year. That’s the first big chunk of the fiscal cliff.
And the second?
The second is the so-called sequester.
Up for a cliff dive? The outliers in the Thelma & Louise Caucus are—they believe careening over the fiscal cliff is a necessary step to rationalize our tax code. Dan Gross explains why he’s one of them.
Tuesday was Day 14 of the Fiscal Cliff Hostage Situation. With Congress out of session and most representatives heading home for Thanksgiving, there weren’t any formal talks. The presumption seems to be, however, that Congress and the White House will come together to make a deal before Jan. 1, thus preventing tax rates from soaring and feared automatic spending cuts from kicking in.
President Barack Obama speaks before Speaker John Boehner, Secretary of the Treasury Timothy Geithner and other cabinet members during a meeting on November 16, 2012 in Washington, DC. (Toby Jorrin / AFP / Getty Images)
Most voices in official Washington earnestly assure Wall Street, the wealthy, and companies that they want nothing so much as to make a deal in the next several weeks. And we should take them at their word. But here and there, it’s possible to detect voices who are urging inaction. Some people, left, center, and right, believe careening over the cliff would be an affirmative good, a willful act of liberation, a step that is necessary to rationalize our tax code. I’ve dubbed these folks the Thelma & Louise Caucus. And I count myself a member.
Comparatively few members of Congress can be seen actively advocating for a lack of resolution. It’s frowned upon. But Sen. Patty Murray, the high-ranking liberal Democrat from Washington, isn’t afraid of the cliff. As Matt Yglesias of Slate points out, Murray in July spoke of the utility of going over the cliff in purely practical terms. In her view, the expiration of the Bush tax cuts establishes a new baseline of significantly higher rates, which would then make it much easier for Republicans to sign off on a tax cut deal. “We will have a new fiscal and political reality,” Murray said. “If the Bush tax cuts expire, every proposal will be a tax-cut proposal, and the pledge will no longer keep Republicans boxed in and unable to compromise.” And, in Murray’s view, this gives Democrats the upper hand. “If middle-class families start seeing some money coming out of their paychecks next year, are Republicans really going to stand up and fight for new tax cuts for the rich?” Without the cliff, there’s no prospect of a deal.
Other members of the Thelma & Louise Caucus believe the cliff is desirable for reasons of justice, not of tactics. Jonathan Cohn, the longtime reporter and Ann Arbor–based health-care maven at The New Republic, is the president of the Michigan chapter of the caucus. For Cohn, the cliff solves all sorts of problems. He never liked the Bush tax cuts to begin with and says we need the money. “I always thought that we should get rid of all the Bush tax cuts,” he said. “It seems to me the Clinton-era tax rates were just fine.”
Jonathan Chait of New York magazine, who is a native of Michigan and formerly worked at The New Republic, represents the realpolitik wing of the caucus. Even before the election, he was gaming out the smart politics behind a cliff dive:
“On the morning of November 7, a reelected President Obama will do … nothing. For the next 53 days, nothing. And then, on January 1, 2013, we will all awake to a different, substantially more liberal country. The Bush tax cuts will have disappeared, restoring Clinton-era tax rates and flooding government coffers with revenue to fund its current operations for years to come. The military will be facing dire budget cuts that shake the military-industrial complex to its core.”
Going over the cliff, Chait argues, will finally allow Obama to turn the tables on the obstructionist Republicans who have made his life hell for the past four years. And he will be able to give up trying to compromise with House Speaker John Boehner because the nature of the game changes. Obama and his crew, Chait writes, “understand something important, something that has not quite sunk in with wary liberals, obstinate conservatives, or split-the-difference deficit scolds: They no longer have to.”
After the House approved the Senate's fiscal cliff deal late Tuesday night, President Obama sent a message to the next Congress, arguing for a balanced approach to deficit reduction. And he was clear about his position on the coming debt ceiling debate. 'We can't not pay bills,' he said.
But Howard Kurtz says it could prove a pyrrhic victory that could threaten his second-term agenda.
Abby Haglage peeks at the fiscal-cliff wish lists of Obama, Pelosi, Boehner, and more.
It was an ugly scramble—and leaves us facing yet another fiscal showdown before spring, says John Avlon.
The president’s budget battle is really a fight with 200 years of obstructionism and selfish greed. By Michael Tomasky.
Impress the relatives with tidbits from our guide on everything from the sequester to the supercommittee.
John Avlon on how our government turned to self-sabotage.
New polls shows that voters are ahead of politicians in understanding the necessity of reforming entitlement programs, writes Eleanor Clift.