Why Democrats Are Willing To Compromise on $250,000

Moneybox
A blog about business and economics.
Dec. 31 2012 8:38 AM

Why Democrats Are Willing To Compromise on $250,000

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What can Democrats get in return for yielding on the $250,000 limit?

Photo by Win McNamee/Getty Images.

Jonathan Chait is one of the smartest explicators, defenders, and exponents of the Obama administration's domestic policies, so when he says the White House has lost the plot by repeatedly indicating a willingness to agree to a top marginal-income-tax threshold higher than $250,000, it gets my attention. But in this case I think he's misreading what's happening.

Ever since Election Day, Obama has consistently and rightly taken the view that the baseline against which he judges a deal is a scenario in which we go "over the cliff" and then pressure mounts on Republicans to agree to the "Obama tax cuts" restoring Bush-era rates on income below $250,000. That raises about $800 billion, and as Obama told John Boehner, he gets it for free. But Obama's always wanted more than what he can get for free. So during the Grand Bargain talks with Boehner he was willing to make considerable compromises as to what the tax code looks like in exchange for Boehner agreeing to $1.2 trillion in revenue. As action shifted from the Obama-Boehner talks to Reid-McConnell talks, the nature of the bargaining also changed. Now they're discussing a Lesser Bargain aimed more narrowly at minimizing the fiscal contraction in 2013. But again, the expiration of the Bush tax cuts for AGI over $250,000 is Reid's baseline. He's willing to give ground on that number not for the sake of compromise, but in an effort to rope things like a delay of sequester cuts, the doc fix, and unemployment insurance funding into the bill.

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This strategy does have a substantial downside relative to a line-in-the-sand approach, namely that it's a little confusing to communicate to the public and it does encourage Republicans to doubt Obama's resolve on the debt ceiling.

But it also has substantial virtues. Rescinding the high-end Bush tax cuts doesn't feed the hungry, educate children, or treat the sick. It doesn't curb pollution and it doesn't reduce unemployment. It's something Democrats think should be done in the long term to reduce the need for long-term cuts to federal retirement programs, but in the short term it's not something that would make anyone in America better off in any concrete way. The stuff Reid is talking about trading for would.

The problem here does come back to the debt ceiling. The administration came out of the election talking a good game about the need to permanently neutralize this weapon, and about the pointlessness of trying to resolve the fiscal cliff while leaving another bigger fight hanging out there. But they blinked almost immediately on that. And now the perception that Obama didn't really mean what he was saying on taxes is only going to strengthen House Republicans' determination on the debt ceiling.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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