On first day of trading in 2013.
Wrong again, Mayans! The new year is getting off to a good financial start Wednesday, as stock markets rallied in the wake of the late-night fiscal-cliff deal. U.S. stock markets, which rallied more than 1 percent on Dec. 31 in anticipation of a deal, were off to the races on Wednesday. The Dow Jones industrial avergage gained more than 229 points, or 1.75 percent; the S&P 500 index gained 26.53 points, or 1.86 percent; while the Nasdaq Composite Index rose 74.26 points, or 2.46 percent. Global markets also rose sharply. The House voted 257–167 to approve the Senate bill that would avoid major tax hikes and spending cuts.
Runs ads in his home state.
John Boehner, is that you? A conservative advocacy group has targeted Senate Minority Leader Mitch McConnell, running ads in his home state of Kentucky highlighting his key role in negotiating a deal to avert the fiscal cliff. Brent Bozell, the president of For America, the group pushing the ads, called them a “statement to make it emphatically clear that what the minority leader did was 100 percent unacceptable. Conservatives are going to hold him responsible for this.” McConnell negotiated with Democrats to create a deal to avoid the so-called fiscal cliff, although many Republicans felt betrayed by the ultimate deal, which allowed for tax increases. The ads will be distributed through Google display ads and will also run on conservative websites such as the Drudge Report and the Daily Caller.
The fiscal-cliff compromise doesn’t solve any of our real problems.
We’ve been warned for years about a coming American debt crisis: a day when markets and creditors would force the United States to raise taxes and cut spending in one sudden painful convulsion. Year after year, that crisis has failed to materialize. And so, in 2010–11, Congress went to work to manufacture an artificial crisis: to impose by legislation the shock that markets obstinately refused to deliver. What was called “the fiscal cliff” was a metaphor for this artificial shock, this deliberately engineered crisis.
Robert Granville reaches for a medicine bottle as he takes his prescription pills on Feb. 25, 2009 in Miami, Florida. Because of budget constraints and a high level of need, Robert is on a one-year waiting list for home care, which many elderly advocates fear may be even longer if funding is cut for these programs due to the economic meltdown. (Joe Raedle/Getty)
More than a century ago, Otto von Bismarck offered a grim assessment of those whose fears of a crisis to come lead them to precipitate a crisis now: it is, he said, like committing suicide for fear of death. In the last days of 2012, Congress and the president together flinched from suicide. They agreed to a last-minute deal to avoid the fiscal cliff: a small tax increase, extension of unemployment benefits, and, otherwise, postponement of the main issues to later.
What should solutions-minded Americans think of the deal? The short answer is that it makes none of the country’s problems better and at least some of those problems worse.
Problem one: jobs, incomes, and economic growth. The fiscal-cliff crisis was contrived on the supposition that the debt and the deficit represent the country’s most urgent problems. That supposition would surprise the millions of Americans who have given up looking for work—and the great majority of Americans who remain today poorer and less well paid than they were six years ago.
There is always a limit to what government can do to accelerate growth and encourage hiring. Whatever that limit, though, it’s surely somewhere north of where we stand now. The fiscal-cliff deal put an end to the payroll-tax holiday. It put an end to aid for budget-slashing state governments. It continues the long, miserable failure to lighten debt burdens of overmortgaged households. The closest thing in the agreement to an economic-growth item? The deal extends some tax credits to the wind-energy industry—and that’s not very close at all.
Problem two: overspending. Republicans say, “We don’t have a tax problem. We have a spending problem.” We can be more specific: we don’t have a spending problem. We have a health-spending problem. The United States spends 60 percent more per person on health care than the typical developed world country. It spends about 25 percent more per person than the next-most free-spending countries, Switzerland and Norway. That extra spending buys worse health outcomes in almost every way we can measure.
Washington insists on talking about “entitlements”—as if the crazy costs of Medicare and Medicaid were a subproblem within the larger problem of the federal budget. They are not. They are a subproblem within the larger problem of the American health-care system, a system about to be upended by the implementation of the Affordable Care Act.
From Joe Biden to Pat Toomey, who are the winners and losers from Congress’ game of chicken? The crisis will have political consequences. What the deal may mean for 2014—and 2016.
After stepping (or stumbling) back from the fiscal cliff, we have a zombie Speaker of the House, his authority as dubious as his tan, his hold on the gavel barely reconfirmed—a hold reliant on a promise that he will no longer sit down one-to-one with the president of the United States to seek bipartisan agreement.
Joe Biden arrives at the Capitol on Dec. 31 for a closed-door meeting with Senate Democrats to urge them to support a tentative tax agreement with Senate Minority Leader Mitch McConnell (R-Ky.). (Drew Angerer/Getty)
John Boehner is less the Speaker than a battered ventriloquist for the Tea Party klatch in his caucus. Don’t hold your breath waiting for him to accept Democratic Leader Nancy Pelosi’s offer as she introduced him on the House rostrum—to come together and find “the common ground that is a higher, better place for our country.”
Instead, the sequel to the end-of-the-year chaos on Capitol Hill is nearly certain to be a Congress that creates crises rather than solves problems. Indeed, the fiscal-cliff confrontation is a precursor of irrepressible conflicts ahead—conflicts that have potentially decisive consequences for the Obama presidency and the economy. There are also political consequences—for 2016 and beyond, and even for the viability of a system of checks and balances that increasingly resembles a charter for permanent checkmate, where the grand bargain on virtually anything seems impossible and even the petty deals are excruciatingly difficult.
The president has been criticized either for doing too little or conceding too much. He has been “missing in action” because he has failed to offer a comprehensive plan for “fiscal reforms.” Never mind that he has sent Congress budget proposals for far-reaching deficit reduction that were routinely disdained by a Mitt Romney-in-waiting GOP. The proposals don’t meet the Beltway standard of inflicting the most pain on the middle class and the poor, and thus would lead Republicans to pursue them with draconian zeal, although their leadership dares not speak the specifics. Instead, they hid behind the vague googooism of “entitlement reform,” in which they would shred everything from Social Security and Medicare to food stamps, college loans, and of course the “socialist” transgression that has so seized and obsessed them—health-care reform.
The GOP lost not only the last campaign, but the last century. Unable to steal the majority—Barack Obama is the first president since Dwight Eisenhower to win more than 51 percent in two successive elections—the losers are still determined to repeal the New Deal, the New Frontier, and the Great Society.
On the other side, there are some progressives who insist that Obama shouldn’t give an inch. He was ready to tweak the cost-of-living formula for Social Security. Progressives denounced the measure as a betrayal of fundamental principle, when in fact it would have just a minor affect on benefits—and most of that 20 years from now. Similarly, they complain that the threshold for the top tax rate was set at $400,000 a year, not the $250,000 the president campaigned on. This is a reflex mirror image of right-wing dogmatism. As Lawrence O’Donnell argued on MSNBC, the $250,000 demarcation line for the top bracket—set under Bill Clinton—today equals $397,000 if adjusted for inflation.
There are liberals who preferred going over the cliff to compromising. It may be easy to indulge this purist impulse if you’re not one of the millions of Americans who would have lost jobs in a post-cliff downturn, lost their unemployment benefits and been left with nowhere to turn, or lost the child- and earned-income-tax credits that are a lifeline for families and the economy. Obama saved all that—and saved the nation and the world from a recession—just as he averted a depression in 2009. Perhaps disappointed progressives can take comfort from the acid verdict of überconservative columnist Charles Krauthammer: for Republicans, the final deal was “a complete surrender on everything ... a rout.”
Tom Wolfe headlines Newsweek’s first digital-only issue with a return to Wall Street 25 years after his classic novel 'The Bonfire of the Vanities.' Read his searing indictment of how the world of finance went wrong and who the new Masters of the Universe are. Get the full issue today on your iPad and other editions.
Come join us as we go back seven months to the apex of the history of American capitalism in the 21st century. We find ourselves in a swarm of fellow starstruck souls outside the Sheraton Hotel on Seventh Avenue in Manhattan, churning, squirming.
To slip past a battalion of cops and a platoon of security operatives in gray suits with small white techno-polyps in their ears attached to coils of white intercom cord trying to keep us under control… as we all but trample the raggedy, homeless-looking ranks of the television crews and every other laggard in our way.
We are ablaze!—ablaze with excitement, burning, yearning for a glimpse of the John Jacob Astor, the Andrew Carnegie, the E.H. Harriman, the John D. Rockefeller, the Henry Ford, the Bill Gates of our century… and that’s him! Look at him! He’s not wearing Astor’s wing collar debouching a silk four-in-hand or John D.’s stiff silk topper and morning coat with a red carnation in the buttonhole of the left lapel and a pair of striped pants, nor even Bill Gates’s off-the-Joseph A. Bank—rack sack suit. No, our man is only 27 years old and attired as a tycoon of our time… His shirt is a gray T-shirt, one of the 30-some gray T-shirts he has on hand in order to make sure he is clad in the same rebelliously fashion-defying teenager garb every day… and over it, a dark-gray sweatshirt with a hood, a garment known familiarly as a hoodie. From this day, May 7, 2012, forward, the hoodie becomes his symbol, his trademark, his battle standard.
In 15 minutes he will be inside the ballroom with an invitation-only crowd of neckties who make up America’s, in fact the world’s, wealthiest potential investors in the initial public offering of an estimated $104 billion worth of stock in his company, a new addition to our most modern industry, known as IT, for “information technology.”
As anyone who has read this far knows before we can say it, his company is called Facebook, and he is our century’s first tycoon of IT, Mark Zuckerberg. As of May 14, Facebook had 901 million customers, one of every eight people on earth (and would soon have one billion, one of every seven). No one had ever dreamed of such a thing, a “social network” that would enable people all over the globe to reach each other instantly, for free, and share pictures of themselves and God only knows what else.
Tom Wolfe talks with Beast TV about his pride in his chosen profession.
The stock was to go on sale three days later, Thursday, May 17, at 11 a.m. By then 82 million bids were primed and straining against the starting blocks. Zuckerberg had hired five old investment banks to take care of the mechanics of the IPO for him: JPMorgan Chase, Goldman Sachs, Bank of America, Barclays Capital, and the lead bank, overseeing the entire operation, Morgan Stanley, in the persons of James Gorman, the CEO, and Michael Grimes. Grimes had been named the No. 1 Wall Street “dealmaker” on the Forbes Midas List four years in a row, 2004—07. At 11 a.m. sharp—bango!—the 82 million bids hit the market. Our old-line investment bankers are agog. They have never seen anything like the hordes of buyers stampeding straight toward them bearing billions of dollars—billions!—desperate to get their hands on shares of Facebook at the IPOffering price of $38 a share before it rockets up to $76 and who knows how much higher. Unbelievable hordes of them! Our old boys panic. They slip, they slide, they flounder. Without a clue as to what they’re doing, they begin drowning this, the biggest and most publicized IPO in history, beneath wave after wave of incompetence. Flummoxed, the old boys call it a “technical error” when the onrush of bids so overwhelms them, millions of transactions are recorded at the wrong prices. The leader of the lead bank, Gorman of Morgan Stanley, blames it all on NASDAQ, the exchange handling the transactions. Under the circumstances—namely, the biggest IPO in history—it sounds like Napoleon blaming Waterloo on the quartermaster corps for not delivering freshly laundered smalls to the front lines in a timely fashion.
As the fiscal cliff approached, the ultra-rich freaked out, rushing to buy apartments and clamoring for dividends. But most companies and consumers kept calm and carried on. By Daniel Gross.
We’re starting to get a clear look at what the economy looked like in December. The month that kicked off with grief (Newtown) was hampered by the post-Sandy fallout in the Northeast and paralyzed by the rising insanity in Washington. As the budget talks went down to the wire, there was a rising uncertainty about tax rates, for government contractors, and in the markets.
A retail store at the CambridgeSide Galleria mall in Cambridge, Mass., advertises a holiday sale on Dec. 24, 2012. (Michael Dwyer/AP)
And yet the data we’ve seen thus far shows that Americans were generally like the stiff-lipped Brits in World War II—they kept calm and carried on. Neither consumers nor businesses really acted in December like they were freaked out by the impending fiscal cliff.
Christmas retail sales may have been disappointing, although blame can be laid in part on the fact that the eastern seaboard, one of the country’s wealthiest and most densely populated regions, was recovering from the after-effects of Sandy. When you don’t have electricity and are faced with coughing up several thousand dollars for a new generator, it’s likely you’ll spend a little less at the mall.
But there are signs that the largest U.S. retail sector was quite healthy. Throughout the day on Thursday, auto manufacturers reported their December sales. And the news was generally good: Chrysler, up 10 percent from last year (PDF); General Motors, up 5 percent (PDF); Toyota, up 13 percent.
The ISM Manufacturing report on business came in at 50.7 percent (any reading above 50 indicates the sector is expanding), reversing November’s decline. The companies responding to the survey indicated that production, new orders, employment, and exports all grew in December.
Remember in October and November, when businesspeople were threatening to Go Galt, to just shut down and fire all their employees in the event of an Obama victory and the inevitability of higher taxes? That was always a bogus threat. And now we have the data to prove it. On Thursday, Challenger, Gray & Christmas reported that the number of announced job cuts in December fell to 32,556, “the second lowest monthly of 2012.” That total is off 43 percent from the November figure and down 22 percent from December 2011. It could be that employers didn’t let people go because they were in the Christmas spirit. Or it could be that they were simply holding onto workers because they had sufficient orders to keep them busy. In other words, they were more focused on hiring than firing.
That explanation makes more sense in light of the ADP National Employment Report, in which the payroll-processing company estimates the number of private sector jobs created in the month. ADP concluded that employers added 215,000 positions in December. Meanwhile, it revised November’s previously reported increase from 115,000 to 148,000. December represented the best single month since February 2012. And guess who was doing the hiring? While giant companies, those with 500 or more workers, added 87,000 posts, medium businesses, those with 50–499 employees, added 102,000, and small businesses added 25,000. “The job market held firm in December despite the intensifying fiscal cliff negotiations in Washington,” said Mark Zandi, chief economist of Moody’s Analytics, which helps ADP tally the figures. “Businesses even became somewhat more aggressive in their hiring at year end.”
Via autopen in Hawaii.
It’s over, right? President Obama on Wednesday signed the legislation that will avert the so-called fiscal cliff, the end results of a high-stakes deal that will raise taxes on Americans making more than $450,000 a year. Obama, who rejoined his family on vacation in Hawaii, ordered that the official copy of the legislation be signed via autopen. The Senate approved the legislation in the predawn hours of New Year’s Day, 89–8, and the House followed suit the same day, voting 257–167 in favor of the deal. The legislation avoids a series of draconian spending cuts and tax hikes that were set to go into effect on Jan. 1.
With Republicans voting to raise taxes, Obama is in a strong position to challenge the new Congress to pass a fiscal grand bargain early in 2013, writes Will Marshall.
The fiscal cliff deal finally passed by the House Tuesday night isn’t likely to lift the public’s rock-bottom esteem for the nation’s elected leaders. It took too long and delivered too little, and the spectacle of a Congress that can’t conduct the nation’s business except under extreme duress from self-imposed deadlines and penalties is infuriating.
Still the outcome wasn’t terrible—and it shows that a grand fiscal bargain is still in reach, as our deeply polarized political class seems to be relearning the art of compromise.
The deal is best understood as ratifying the 2012 election result. President Obama campaigned and won on explicit promises to raise tax rates on the rich. That mandate, plus the automatic expiration of the Bush tax cuts, left Republicans with no choice but to negotiate with the White House over narrowing the scope of the coming tax hike.
Had House Republicans followed Speaker John Boehner’s lead, they probably could have won significant spending cuts in return for reneging on their anti-tax pledge. But they didn’t, and the result was a one-sided victory for Obama, who got $620 billion in revenue from raising rates on very wealthy households, plus an extension of the stimulus tax breaks for low-income families and $30 billion in new spending on unemployment, without having to convince Democrats to swallow cuts in entitlements.
In effect, Republicans opted to give Obama his pound of flesh on tax rates now, and save the big battle over long-term debt reduction for the next Congress. They reckon the imperative of raising the debt ceiling early in 2013 will give them more leverage to demand spending cuts from the White House. That’s doubtful, because the public rightly sees GOP intransigence as the main obstacle to a grand bargain.
But the fiscal cliff deal shows that intransigence has its limits, as Republicans finally broke the conservative taboo against raising tax rates that party members have observed religiously for over two decades. Some 85 House Republicans defied the Tea Party and voted to boost tax rates—an outbreak of fiscal sanity that bodes well for the prospect of passing more sweeping reform this year.
Especially delicious was the sight of Grover Norquist, the Grand Ayatollah of anti-tax orthodoxy, issuing a fatwa permitting Republicans to vote for raising rates. The ever-nimble Norquist seized on a technicality—a new budget baseline—that means the tax hike will actually be scored as a tax cut. It’s ironic that he would seek refuge in such Washington arcana—the very thing right-wing ideologues are supposed to hate.
Word had it that the Tea Party was on the decline, but the Republican cave on taxes is galvanizing furious grassroots members, who are vowing to root out recalcitrant GOP lawmakers in 2014—a year they say will make the 2010 wave look like a ripple.
Until last night, the conventional wisdom in Washington was that the Tea Party was on the wane. Congressional leaders of the nascent movement, like Allen West and Joe Walsh had lost reelection, or, like Jim DeMint, had decided to leave politics altogether. House Speaker John Boehner had stripped some of the more outspoken members of the Tea Party caucus of their congressional leadership posts, a sign that the GOP establishment was no longer going to be led by its ultra-conservative tail. The big money groups backing the Tea Party were falling apart in a spate of post-election season squabbling.
President Obama thanked Speaker Boehner after the House passed the Senate’s fiscal cliff legislation.
But after 85 House Republicans joined Boehner in raising taxes without spending reductions during the end game of Monday night’s fiscal-cliff negotiations, Tea Party leaders and conservative activists from around the country are dusting off their tri-corner hats and “Don’t Tread On Me” signs, and now say that their members are as energized as they have ever been since the first Tax Day protests in 2009. And the Republican Party, they add, had better beware.
“We now have 85 members of the House who have shunned their noses at us,” said Dustin Stockton, a Texas- and Nevada-based operative and the chief strategist of The Tea Party.net. “Our job now is to recruit and inspire and motivate people to run against those Republicans who did it.”
For Tea Partiers and fiscally conservative Republican rank-and filers, the Congress that ended its term this week was at last a chance to get federal spending under control. Hopes were high that this class, which more than doubled the number of members in the House’s Tea Party caucus on their first day, would repudiate previous Republican tendencies to reverse campaign promises and open up the spending spigot as soon as they had their hands on it. And if these newly minted members failed, the Tea Party promised to rally its energy behind new challengers who wouldn’t.
Instead however, this Congress voted to increase spending three times, and never once to cut taxes. The final indignity, the bill to avoid the so-called “fiscal cliff” by raising taxes on the wealthiest, was negotiated behind closed doors and at the last minute, anathema to a group that had pledged unprecedented openness around legislation. Plus, as many Tea Party leaders around the nation pointed out, the bill that was passed this week includes $1 dollar of spending reductions for every $41 of new taxes.
“I was shocked about that. I was in complete shock,” said Louisiana GOP chairman Roger Villere, Jr., who, despite working in the establishment, has actively courted Tea Party types in the Bayou. “I think the conservative movement is going to get fired up. I don’t see people getting depressed. I see people getting fired up and working twice as hard.”
And it’s not just local grassroots groups that have been incensed about the deal, but even GOP insiders with close ties to the movement, such as Villere and some of the well-heeled national umbrella organizations that provided the Tea Party some institutional heft.
Obama isn’t Captain Liberal. He’s the president. And liberal pundits who are up in arms about the fiscal-cliff deal seem not to recognize the difference. By Michael Tomasky.
Here’s my New Year’s resolution: I’m going to read less liberal grousing about Barack Obama. At the moment, we have a number of critics of the deal Obama just cut with the Republicans to avert the fiscal cliff. They make some fair points, about the deal and about Obama. But if there’s a style of criticism that really bugs me, it’s that which reproves him for failing to be Captain Liberal while refusing to recognize that the guy has to be Mister President. Here’s what I mean.
After the House passed the Senate’s fiscal cliff bill, Obama warned Congress: the U.S. can’t ‘simply cut our way to prosperity.’
The standard liberal position in the run-up to the cliff deal, or at least a position taken by a number of prominent liberals, was that Obama should have let the country go over the cliff, because he’d immediately have more leverage after Jan. 1. Taxes would go up, the argument went, most of the country would blame the Republicans, and boomity-boomity-boom, they’d come crawling to Obama ready to sign a deal on his terms.
I will readily confess that the logic is, if not impeccable, only mildly peccable. The Republicans would have been over a barrel. Of course predicting what those people will do and how they’ll respond to any given situation is risky business, but presumably they would not have wanted to be blamed for middle-class tax rates going up, so they’d have done something vaguely rational.
I get it. But here’s what I think proponents of that argument don’t get. Obama isn’t some co-speaker. He’s the effing president. People want the president to lead. They may blame Republicans more than Democrats for obstruction, and that’s a good thing. But they still want the president to Get Things Done, and, however naively, they still think he ought to be able to just assert his will and Get Things Done.
There is, in other words, a responsibility that comes along with being the president. It may be unfair, but the leaders of the House and Senate can play all the silly games they want to. Half the country or more doesn’t even know who they are. But the president—he’s supposed to do stuff. Obama really and deeply understands this—perhaps to a fault, but better that than believe he only has to represent the third of the country that loves him.
Sometimes acting out the jobs of Captain Liberal and Mister President can be done in harmony. But sometimes not; in fact, I’d say most often not, given that this is not an especially liberal country. So Mister President Obama was absolutely right to make every effort to hit the deadline. To your average person, failing to hit it would have been a terrible reflection on him, and an explanation from him about his increased leverage would have just sounded like more game-playing.
Relatedly, I’ve been amazed to read, sometimes from people I’ve considered quite knowledgeable, that Obama held “all the cards” here. He didn’t, by a long shot. This was a negotiation. Negotiations are hard. The other side wants exactly what you don’t want. Like it or not, liberals, the other side legitimately represents 47 percent of the country, so they had every right to get something out of this. And as it happens the other side also had the ability to block anything from happening. And they would have, too, if Obama had given them half an excuse.
The House speaker’s four-letter blast at the Senate majority leader is the latest ugly twist in the nasty back-and-forth between warring Washington pols. Lloyd Grove on the decline of Capitol Hill civility.
It was the sort of acrimonious exchange between co-workers that, had it happened in the private sector, would have landed the aggressors in the Human Resources office.
Last week, Harry Reid told Congress today that the Speaker is running the House like a 'dictatorship' and that all Boehner cares about is keeping his job—and not keeping the country on track financially.
But John Boehner and Harry Reid are constitutional officers of the United States—the Republican speaker of the House and the Democratic Senate majority leader, respectively—so their sulphurous, X-rated squabble last Friday, in the midst of fiscal-cliff negotiations at the White House, had no consequence beyond the further coarsening of political dialogue and a decreased likelihood of bipartisan cooperation in the nation’s capital.
“Go fuck yourself,” Boehner advised Reid as they crossed paths just outside the Oval Office.
“What are you talking about?” Reid asked in surprise.
“Go fuck yourself,” Boehner explained.
In the annals of Washington dysfunction, the nasty back and forth was memorable, though certainly not unprecedented. Who can forget South Carolina Republican Rep. Joe Wilson’s shout, “You lie!”—in the middle of President Obama’s September 2009 health-care speech to Congress? Indeed, Boehner’s outburst was a near-verbatim replay of Vice President Dick Cheney’s notorious recommendation to Sen. Patrick Leahy (D-Vt.) eight years ago on the Senate floor. (Cheney was irate about Leahy’s attacks on his former company, Halliburton.)
“To put things in perspective, this is not one lawmaker punching another, or caning him half to death, so I don’t want to hype its impact,” said American Enterprise Institute scholar Norman J. Ornstein, co-author of It’s Even Worse Than It Looks: How the American Constitutional System Collided With the New Politics of Extremism. “But the fact that Boehner dropped a couple of f-bombs on his Senate counterpart, and in the White House at that, reflects the tribal nature of our politics these days, and the less-than-cordial relationships that exist among and between the congressional leaders. Having said that, we can all thank Dick Cheney for his pioneering role.”
We raised taxes on the rich. Now what?
I wrote on Monday that it wasn't clear to me that Republicans actually wanted any of the stuff they said they wanted in exchange for tax hikes, like entitlement cuts. The Democrats at least had one thing that was politically popular: tax hikes on those who make more than $250,000 a year. Now they've done it, or at least, gone most of the way there: taxes rise on incomes above $450,000 ($400,000 for singles), while the Bush tax cuts are permanently extended for everyone else. Sure, that means we're raising taxes on only about one half of one percent of the population instead of 2 percent, but that half a percentage point contains most of the obscenely rich people, while exempting the professional class that contains a lot of Democratic voters in high-tax, high income blue states.
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.
Yet Democrats and liberal pundits seem distinctly unhappy. Partly they're just mad that Obama made concessions at all; apparently, they were expecting that they wouldn't have to, not on anything significant. But I wonder if there isn't something else to it. As the saying goes, be careful what you wish for: you might get it. And then what do you do for an encore?
In a few months, we begin anew the fight over raising the debt ceiling. Democrats are saying that they must get 1-for-1 new revenue in exchange for any spending cuts. But do they actually want new revenue? I submit that just as Republicans are more interested in entitlement cuts as talking points than as actual new laws, Democrats will prove much more interested in tax hikes in theory than in practice.
For starters, there's a matter of timing. President Obama just successfully raised taxes on the rich. Is he going to go back and do it again in a few months? I'm not sure about the optics here: while I think that a tax increase on the rich was popular and inevitable, I don't think that Democrats will do well to position themselves as the party that does nothing but demand more tax increases, even on rich people. Moreover, each successive tax increase is likely to be less popular than the last, precisely because the most politically popular increases inevitably get passed first. A return to the Clinton-era tax levels on people who make more than $450,000 a year is, politically speaking, a no-brainer. A further hike will peel off a few voters who just wanted the rich to pay their "fair share" and now feel content. The third hike will be pushing rates close to 50%, if it is to raise any money at all. That seems to be pushing pretty far past most Americans' ideas about what tax rates ought to be.
Now consider the potential alternative sources of extra revenue. Which of these do Democrats actually want to do?
1. Limit personal income tax deductions: In theory they're totally in favor of getting rid of loopholes. In practice, they're maybe willing to attack the carried interest deduction for hedge fund managers, but this raises a trivial amount of actual cash for federal coffers. All the real money is in the the child tax deduction, various educational deductions and credits, the mortgage interest tax deduction, the charitable deduction, and the deduction for state and local income taxes. Touching the first is political suicide, and touching the rest is a slightly more exotic form of political suicide. Ending the state and local income tax deduction would create instant political pressure to shrink blue state government, and also of course be bad for blue-state taxpayers. The mortgage interest deduction also disproportionately benefits blue-state homeowners whose homes sit on expensive land. Educational tax credits are also a boon to various Democratic constituencies, including educational workers. And nonprofits are a very liberal sector that many policymakers and legislators move in and out of.
2. End the tax-free status of municipal bonds: As with the personal income tax deduction, I have no doubt that there are Democrats who think they want to end this. This is, after all, the gimmick which allows folks with the wealth of a Theresa Heinz Kerry to pay approximately the same effective tax rate as a single mother payroll clerk.
Speaker cursed out Senate majority leader outside Oval Office.
Get that rage out where you can, Boehner. As the tense weekend of fiscal-cliff negotiations were just getting started, House Speaker John Boehner reportedly walked up to Senate Majority Leader Harry Reid outside the Oval Office on Friday and said, “Go f--k yourself,” according to a report in Politico on Wednesday. Startled, Reid reportedly replied, “What are you talking about?” and Boehner repeated his earlier statement. Boehner then reportedly bragged about the exchange to House Republicans. After a marathon two days on the Hill, both the Senate and the House passed a fiscal-cliff deal, although not without major concessions by Republicans—including allowing tax hikes on the wealthiest Americans. The president is expected to sign the deal on Wednesday.
Yes, the House did manage to push through a deal to avoid the fiscal cliff at the last possible moment. But the ugly scramble was exasperating—and leaves us facing yet another showdown before spring, says John Avlon.
“You can always count on Americans to do the right thing—after they’ve tried everything else,” Winston Churchill once said. But even by that standard, the scramble to avoid the entirely predictable fiscal cliff at the last possible minute was an exasperating exercise that made sausage-making look good.
House Minority Leader Nancy Pelosi of Calif., center, flanked by Rep. Joseph Crowley (D-N.Y.), left, and Rep. Xavier Becerra (D-Calif.), at a news conference on Capitol Hill to discuss the fiscal-cliff bill passed by the Senate, Jan. 1, 2013. (J. Scott Applewhite/AP)
Despite 518 days to deal with the sequestration cuts and 12 years to anticipate the end of the Bush tax cuts, it took two late-night votes on the hinge of the New Year to stop Congress from kicking America’s economic recovery in the teeth. The Chinese must have been laughing, watching C-Span these last few days. This is not a textbook example how great nations govern themselves.
But as bad as it looked from the outside, the atmosphere in the corridors of Congress was even worse, according to staffers. With the sun setting on New Year’s Day, chaos was the order of the day inside the House Republican conference, when Majority Leader Eric Cantor came out against the Senate’s bipartisan bill to avoid the fiscal cliff. The complaint among conservatives was that spending cuts were absent from the last-minute deal.
That’s true—and irrelevant at this particular moment. All hope of a grand bargain evaporated when House conservatives undercut Speaker John Boehner’s attempts to negotiate with President Obama. House Republicans’ rational right to amend any bill ended when they hightailed it out of town to enjoy an extended Christmas vacation and kicked the responsibility for negotiations to the Senate.
The irony, of course, is that hard-core conservatives’ impulse to condemn any compromise ended up costing them a better, more comprehensive deal on overall deficit and debt reduction. The president had been offering entitlement reform, at the risk of angering his base. None was included in this package.
As it stands, the fiscal-cliff bridge—crafted largely by Vice President Joe Biden and Senate Minority Leader Mitch McConnell—represents a compromise on taxes that in saner times would be seen as a win for the center right, permanently extending tax cuts for 98 percent of Americans, fixing the onerous Alternative Minimum Tax by adjusting it for inflation, and taxing estates over $5 million at 40 percent—lower than just a few years ago. Revenue is going up, but not nearly as much as many liberals had wished. The AFL-CIO strongly opposed the measure.
But despite this, almost precisely two times the number of House Democrats supported the bipartisan Senate plan as Republicans. The final vote count was 172 Democrats in favor versus just 85 Republicans in favor, including Speaker Boehner. The no votes from Republicans totaled 151, while just 16 Democrats gave the Heisman.
The president is riding high now that many Republicans have joined in raising taxes on the wealthy. But Howard Kurtz says it could prove a pyrrhic victory that could threaten his second-term agenda.
President Obama clearly won the fiscal cliff skirmish on Tuesday as he faced down the Republicans, forcing them despite years of fervent promises to raise tax rates on the wealthy. But he also made concessions over New Year’s weekend that could weaken his hand in future battles.
U.S. President Barack Obama delivers remarks about the fiscal cliff negotiations in the Eisenhower Executive Office Building next to the White House December 31, 2012 in Washington, DC. (Chip Somodevilla/Getty)
Beating back a conservative revolt in his party, Speaker John Boehner brought to the House floor the compromise bill passed in a predawn session in the Senate. The bill passed late Tuesday night, with Nancy Pelosi’s Democrats providing 172 votes, enough to offset substantial Republican defections. Eighty-five Republicans voted for the bill.
The measure will restore the Bush tax cuts for individuals making less than $400,000 and families under $450,000 a year, while also extending unemployment insurance for a year and reviving an inheritance tax exemption for estates under $5 million.
During several tense hours, with Majority Leader Eric Cantor opposing his own speaker, it appeared the House would amend the bill to include $300 billion in spending cuts—which, if it had passed, would have required further negotiations with the Senate that probably would have run out the clock. But the leadership decided to stick with the “clean” version, knowing full well that Democrats would get the ball across the finish line.
At the same time, Obama has left some in his party disaffected as well. By raising the income threshold at which higher taxes kick in from $250,000 to $400,000, the president did more than back off his constantly repeated campaign vow. He gave away a huge amount of future revenue that will make it more difficult to fund the entitlement and social programs dear to Democratic hearts.
Obama also signaled that when push comes to shove, when the final deadline is at hand, he will retreat from his line-in-the-sand position, although the White House would call it reasonable compromise that spared most people a nasty tax hike.
Still, this was his moment of greatest political leverage. And now that the messy and embarrassing slog over the tax issue has been resolved, the playing field will be more favorable to Republicans in 2013. The administration has little left to trade now that the debate will focus on the $110 billion in automatic spending cuts that Tuesday’s voting delayed for two months.
Both sides expect it to pass.
House Republicans signaled late Tuesday that they will allow an up-or-down vote on the bill to resolve the nation's "fiscal cliff" that passed the Senate on Monday night, with the vote reportedly taking place around 9 p.m. The possibility of a vote remained unknown throughout the day as teh bill wasattacked by conservative representatives unhappy with the concessions their Senate colleagues made. Congressman Eric Cantor reportedly indicated that he would not support the legislation in its current form and other GOP lawmakers complained it is raising taxes and not slowing spending enough.
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.
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