Next up, deficit reduction and immigration

Now we begin the next round of chicken with deficit reduction.  Expect Obama to sit down with Republican congressional leaders soon. Eventually he will offer up a plan loosely based on Bowles Simpson, designed to be acceptable to a majority of voters, and rejected immediately by the Republicans. Then comes a dance with lots histrionics and public posturing until D-day approaches in January.  Democrats threaten to let the Bush tax cuts simply expire.  Backed up against a fiscal disaster, Obama and Boehner will agree to something not far from where they last left off.

The next domestic policy item ought to be immigration reform.  Latino voters have saved the democratic party with little to show for it.  Don’t expect that to last forever.  Democrats need to put forward an immigration reform proposal that is based on amnesty for most illegal immigrants that are already here and have not committed crimes.  We need to make the economic argument for this proposal – which is that more workers lead to more economic growth and more tax revenue, which we will sorely need to cover the Medicare cost of a booming elder population.



Discuss

17 Comments . Leave a comment below.
  1. God, I hope not

    The last thing our economy actually needs at this point is more short-term “deficit reduction” and I’ll blow a gasket if we have any of this “Grand Bargain” crap.

  2. Well

    It might be nice if the time between now and January can be used to position for leverage at the last minute, rather than by making compromising proposals to an empty chair, and then caving for lack of leverage.

    I think it highly likely that is not entirely to the liking of the most Democratic Democrats– because the GOP still has the House, and gridlock would be a bad thing. So something has to be done between now and then that would make people blame the House, rather than the Senate or the administration, for the bad things a’coming.

    Then, make a deal from a position from strength. Include some entitlement cuts so that some liberals scream and yell, and thus neutralize debt as an ongoing issue.

    This would be preferable to the usual Democratic tactic to do absolutely nothing but complain what a meanie Eric Cantor is, and be forced into a humiliating concession because they have no leverage.

    • darn

      highly likely that something is coming that is not entirely … etc.

    • The Dems hold a lot of the cards,

      if they are willing to use them. The key point is that if nothing is done, tax rates go up across the board when the Bush tax cuts expire. Once that happens, it’s easy for congressional Dems to get rolling on a bill that cuts taxes for the middle class and leaves rates for the top earners alone. If Republicans vote against that, they’re voting against an actual tax cut. So in a peculiar way, gridlock helps the Dems more than the GOP.

      • That's what I said in 2010

        Let’s get it right this time

      • I don't think it will be so easy at all

        I think that they must maneuver, and very soon.

        A tax bill must start in the House, which is under the control of the GOP. The House will pass a bill that contains the necessary “middle class” tax cut but also various other things in the form of spending cuts or “rich tax cuts” that will be unpopular with Dems, and so won’t make it through the Senate, or (less likely) gets vetoed. I would expect this to happen zippity quick once they are all back in Washington.

        Quoth the GOP:
        Hey, we did what we could. We the House passed the tax cut. We in the Senate would pass the tax cut, if only Harry reid would allow it to come up for a vote. We in the Senate voted for the tax cut, but Senate Democrats rejected the tax cut. Why wont Harry Reid set it for a vote?

        Why does (whomever is a Dem and possibly vulnerable in 2014 , e.g, Mark Begich D-AK; Pryor D-AK; Udall D-CO; Landriu D-LA; Franken D-MN; Baucus D-MT; Shaheen D-NH; Hagan D-NC; Johnson D-SD; Warner D-VA; Rockefeller D-WV) support this tax hike? How hard will it be to peel of 4 or 5 of those? Not hard. So, Reid will have to refuse to allow it to come up for a vote in order to protect these people, which looks bad, or one of the safe liberals will filibuster, which will screw them in their dealings with Mitch McConnell for the next two years.

        So, the key is that if nothing is done, the Republicans have the initiative and thus the leverage, and the Democrats will necessarily cave in a humiliating fashion. Because it is a pretty big lever providing the leverage. And the “rich tax hike”– though a huge political point on the left– (i) doesn’t really do shit for the debt or deficit, because it is small dollars; and (ii) may not be something anybody cares that much about when their own paycheck just got a LOT smaller. And may not be something they remember when that list is up for re-election in 2014.

        It would be nice if there were something concrete that fixes the problem for the House Republicans to unreasonably reject, rather than vice versa. So what, the Republicans will yell and scream about the Constitution providing that such bills start in the House. Let them. But act. Now.

        Even then, the House GOP will have a much higher tolerance for pain because most of them have very safe seats for the next 8 years because of the 2010 GOP sweep.

        But all this would require the Democratic leadership in the Senate, as well as the administration, to do something proactive VERY SOON to gain the initiative, rather than doing nothing except complain about what a meanie Eric Cantor is, until capitulation is necessary. When was the last time Dems in Congress were proactive?

        At the moment, I think that it is more likely that there will be a “compromise” that contains much of what the tea party demands, and little of what the bulk of Democrats want.

        • Now is the time...

          So, the key is that if nothing is done, the Republicans have the initiative and thus the leverage, and the Democrats will necessarily cave in a humiliating fashion. Because it is a pretty big lever providing the leverage.

          … the ‘lever’ of which you speak is neither as large nor quite so… leverly… as you think. Or, at worst case, levers in both directions.

          The real problem isn’t the ‘fiscal cliff’. The problem is clawback: once the cuts happen they won’t be fixed anytime soon… with the exception of Medicare. And there will be screaming over defense If we go over the cliff on Dec 31, then on Jan 1 there will be a mad scramble to put Medicare back together and loud noises about defense spending. These things are in much closer competition than you think and the congress, in particular the HofR will be required to actually, you know, make a decision.

          The congresscritters don’t want to go over the cliff because they are unwilling to make the decisions that will be afterwards required not because of the danger of the cliff.

          • Again

            I am not sure that chaos in Medicare is viewed by the House as a problem, rather than a goal. I also think they expect to try to regain some of their lost clout on security/defense by “Obama left the troops screwed.”

            My view is that the if the administration and Senate Democrats passively wait for events to force the HoR to make a decision, rather than doing it themselves, they will get burned, just as they did with the debt ceiling.

            Never mind that they may be passing up an opportunity to really make the HoR GOP pay a political price for extremism because aw gee Boehner said nice things the other night.

  3. the final deal

    I think it is likely that the final deal will include repeal of the Busch tax cuts for those over $250,000 and a change in the indexing of social security increases. No idea what else. I don’t think they can muster enough support on either side to deal with Medicare, so that will be put off for another day.

  4. Phase in the removal of the SS cap

    The payroll tax (with or without its temporary reduction) is one of our most regressive taxes. The most direct and relatively painless way to assure the sustainability of Social Security is to phase in the removal of the cap on the Social Security payroll tax. This mostly solves the long-term SS problem, doesn’t affect low-income households, and (at least in my view) is worth the small burden it adds to moderate-income households. The other change that I think finishes the job is to phase in an increase to the retirement age, raising it to 69 or 70 over a period of years.

    • I don't support raising the retirement age

      due to seeing data about the relative health of desk vs. manual laborers in their late 60s.

      I do support raising the cap, or having a donut as 2008 candidate Obama proposed with no S.S. withholding on income between $125K and $250K, but withholding on income from $250K to some higher number.

      They may have to “give” something but it should be small. If House GOP doesn’t like it let Bush cuts expire for all, then have Dem Senate introduce a bill to lower rates for bottom 98%. Let GOP filibuster (if the option’s still there for them) and feel the heat, or pass via reconciliation. Then ball is in Boehner’s court.

      • Yes

        Long term, I am not sure that raising the cap has such a great effect, since benefits are a function of contributions. So, higher cap yields more taxes collected presently AND more benefits paid solely to very rich people later. Short term, it certainly makes the numbers look better. It might be worth the tradeoff.

        I have long thought that raising the retirement age will be necessary, because the program can’t really support the payment of decades worth of benefits. Maybe some futzing with the disability rules for the nearly-there set would help this. Eventually, the math will force this, as the top of the baby boom curve hits retirement age (i.e., next year).

        I agree that they have to put the ball in Boehner’s court. I explained above why I think that this will be quite a bit harder than it sounds, particularly if the strategy is to wait for the crisis to force Boehner’s hand.

        • Why not raise (or better, eliminate) the cap on contributions, but keep the cap on benefits? I know, some will yell “redistribution!”, but my understanding is that SS is a safety net, supposed to provide for the retired poor, not to support exactly the lifestyle the person had before retirement.

          • I disagree

            I do not think that social security was intended “for the working poor” but rather for the working non-poor, in an effort to prevent them from becoming elderly poor. I view this as a suble yet politically significant distinction. Changing that character might improve the financial stability of the system, but sacrafice the political stability of the system. Not a beneficial exchange, in my view.

            Once contributions and benefits are not connected, then there will be a natural tendency to keep the contributions as low as possible while maximizing the benefits– as we already have and have been struggling with. As and when the math causes us to close the gap, the easiest way to do it would be to widen the separation between contribution and benefit, which will make the whole program vulnerable to repeal.

            The beauty of the political design of the program is that everyone puts in the same, and gets the same benefits. That means that the government doesn’t put itself into the role of deciding who gets more or less, relative to their contributions, and thus that no one thinks that the entire program is fundamentally unfair.

            Once the connection is severed, then, I think that the entire program morphs into a welfare program, which you may have noticed have never been described as the “third rail” of American politics. Lightening rod of American politics might be a more apt description.

            So, in concuision, no thanks.

            • How about we say

              I do not think that social security was intended “for the working poor” but rather for the working non-poor, in an effort to prevent them from becoming elderly poor.

              It was designed for the formerly working non-rich, meaning people who need it to prevent them from becoming elderly poor, as you say. People who are quite well off but paid into it over the years receive S.S., and in fact receive more because they put in more.

              But that was not the goal of the program, just a trade-off made to win passage. It was seen as necessary to win support and head off objections that it was redistributive.

              Many liberals and Dems have taken your position over the years, and mischievous GOPers have proposed means tests for benefits, which I agree would make the program more politically vulnerable.

              • Okay.

                Many liberals and Democrats– including no less than FDR himself– have taken that position. I happen to think that the political design of the thing, whether or not based on the idea of FDR, is quite brilliant, and would be profoundly reluctant to fix the things that aren’t broke.

                I accept your re-phrasing. I think we are both describing the same thing, and both trying to avoid the amorphous term “middle class” which has come to mean “everyone.”

                • Right

                  I was mostly agreeing with your comment. My only quibble was that, though the program wasn’t designed specifically for “working poor” people it wasn’t designed to exclude them either. It was designed to minimize the number of people who worked during their lives and ended up poor when older.

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