David R. Henderson  

Kuttner and Norquist on Taxes: The Republicans Won

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Inescapable Intuition... Yglesias on Narcissism...

In early January, I wrote a post whose subtitle was "Pssst: Someone tell the Republicans they won." The gist of it was that the Republicans got the Bush tax cuts made permanent for all but the very highest-income Americans. An excerpt:

Had the Republicans held out for anything like the reforms that Sumner and Landsburg wanted, the bill would have been Dead on Arrival in Harry Reid's Senate. You don't even need to bring Obama into the picture. End of story. So then taxes would have gone up dramatically for people at every income level. So what could Speaker John Boehner and Minority Leader Mitch McConnell do?

What they could do is try to raise as high as possible the threshold beyond which marginal tax rates rose. Boehner first tried that with a $1 million annual income threshold before Christmas but couldn't pass that through the House with just Republican votes. If Republicans regret that, they probably shouldn't. Harry Reid would have killed that bill also. But, with the New Year's eve agreement between Vice-President Biden and Mitch McConnell, those large increases in tax rates apply only to singles with income of over $400K and married couples with income over $450,000. That's bad, but look at what the Republicans got in return.

After years in which Democrats attacked "the Bush tax cuts," which were temporary (they were originally were set to expire in 2011) many of the Democrats, plus many Republicans, voted to make most of the tax cuts permanent.


Today, leftist Robert Kuttner agrees with me, and in article titled "Grover Norquist's Last Laugh," he quotes anti-tax activist Grover Norquist's agreement also. Kuttner writes:
If you compare the leverage that Obama had in that set of bargaining with the leverage he has now in the post-sequester budget negotiations, it is like night and day. Had Obama hung tough and demanded a lot more in the way of tax increases on the wealthy, [DRH note: Kuttner, like most people on both sides of the debate, insists on calling high-income people wealthy. There's a huge overlap, of course, but high income and high wealth are not the same thing.] Republicans were just stuck--because no action would have caused taxes to increase on everyone. Obama had begun the bargaining requesting a reversion to the pre-Bush tax levels on the top two percent, targeting revenue increases of at least $1.6 trillion over a decade. Instead, he settled for just $620 billion--meaning that another trillion has to be taken out of the spending side. Senate Majority Leader Harry Reid was holding out for the higher number, correctly calculating that Republicans would have to give ground, when Obama undercut Reid by shifting the leadership to Joe Biden with instructions to make more concessions, without even the courtesy of informing Reid. The White House also disastrously miscalculated that the threat of defense cuts in the sequester would bring Republicans back to the table on taxes. Oops. Republicans realize that Afghanistan is winding down, and what's most interesting about the Paul Ryan budget is that its proposed defense spending over the next decade is scarcely different from the Democrats' proposal.

I happened to be speaking at The Atlantic's Economy Summit conference this week, where Norquist was also a speaker, and I had a chance to discuss the January and March budget negotiations with him afterward. According to Norquist, when House Republican negotiators were told that Obama would settle for as little as reverting to the pre-Bush tax rates only on the top one percent, they were astonished at their good fortune. Obama's cave-in was almost too good to be true. As Norquist sees it, the White House was so fixated on the symbolism of getting Republicans to say "uncle" on some form of tax increases on the rich that Obama lost track of both the substance and the larger tactical situation. In late December, when the automatic tax increase of the fiscal cliff was the threat, Democrats held all the cards. Now, with the automatic spending cuts of the sequester in play, the Republicans hold the cards. Why, Norquist wondered, didn't Obama hold out for only a one-year deal on tax cuts, so that the Democrats would have the leverage of automatic tax increases to hold over the Republicans in the sequester negotiations and next year?

Great idea! I'd never heard anyone propose that gambit.

"Who came up with that?" I asked. "I did," said Norquist. He was worried that the Democrats would think of it. The White House should hire this man.


I'm guessing that Kuttner's title is mistaken: this will not likely be Grover's last laugh. He's a pretty sharp strategist.


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COMMENTS (3 to date)
Hazel Meade writes:

Plus, the sequester. It's a loss for the defense hawks, but a win for deficit hawks and libertarians.

Brian writes:

David,

Yep, I agreed with you completely in your earlier post. Not only did the Republicans get most of what they wanted, the deal plus sequester step allowed them to take a tactical retreat, wait, and then argure that, now that they've given in on tax increases, it's up to Obama to take a step with spending reductions.

What's often lost in all this is that Obama can't negotiate, he can't lead, he can't charm--he really is not very skilled at being Chief Executive.

MingoV writes:

The Republicans may have won on this unimportant budge issue, but the taxpayers lost again. Federal spending increased by over 35% in Obama's first year. The increase was mostly for a "one-time" stimulus. By not passing a budget in subsequent years, Obama and the Democrats retained that massive increase in spending. Now, Democrats AND Republicans act like 3.6 trillion dollars of federal spending is the norm. Those big government lovers conveniently forgot the 1.2 trillion dollar increase over 2007 spending. (2008 spending included big, one-time bailouts.)

I didn't read any commentary, even on conservative or libertarian web sites, about the permanence of massively increased federal spending. Did everyone forget in just a few years?

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