Monday, December 10, 2012

Catch of the Day

The Catch goes to Steve Kornacki, who points out that Newt Gingrich and Republicans in general have never owned up to being dead wrong about the Clinton tax increases:
The refusal of Gingrich and most other Republicans to grapple with what actually happened in the 1990s is a major reason the GOP has maintained its absolutist anti-tax posture for the past two decades. They’ve alternately credited the 1994 elections, the ’97 capital gains tax cut, and the dot-com bubble with the surpluses of the late ‘90s – anything, it seems, to avoid acknowledging the reality that taxes went up on the rich in 1993, and nothing bad happened.
Which is true.

Except it does depend on how one looks at it.

If you're Newt Gingrich, then the main reality is that taxes went up on the rich in 1993, and it immediately produced disaster...for Speaker Foley and the Democrats. Indeed: from Gingrich's point of view, the Bush tax increases before that produced Bush's defeat in 1992.

Now, in reality, it's far from clear that either of these electoral outcomes were caused by higher taxes (as I read the evidence, the 1992 election outcome was not at all affected by higher taxes; the case for 1994 is a lot more murky). But the "learning" that's so important in politics doesn't depend on or use careful causal analysis. More often than not, everything associated with winning campaigns or electoral cycles gets credit, and anything associated with losing campaigns or electoral cycles gets blame. Especially anything which was those participating in the events believed at the time was a big deal, or have other incentive to believe in.

So, yeah, on substance it's of course absolutely true that Republican claims -- specific, testable claims -- about the effect of the 1993 budget package were completely and totally wrong. But it's very understandable that Republicans learned the opposite lesson from it, because politically it was extremely easy for them to believe that raising taxes was a total disaster for Bill Clinton and Congressional Democrats.

The really scary part? If Republicans were able to conclude that about the 1993 tax increases, in which their policy predictions were clearly way off, just how much more are they likely to believe that the Affordable Care Act was a policy disaster, given that the political (apparent) effects were similar but the policy predictions and effects will presumably be a lot more ambiguous.

At any rate: nice catch!


  1. With regard to the ACA, I just don't know. As you have said, JB, it may well cease to be an identifiable thing at all, which leaves rabid opposition to it in the position of floundering around with no target. It's much easier to maintain a firm stand against something that is relatively clear cut and that everyone has direct experience of, like taxes, which everyone is familiar with from their paycheck.

    But the ACA? I just don't know. It's such a bundle of different policies and practices that will largely fade into the background once in place. I suppose the individual mandate could become, de facto, the ACA in public rhetoric (I suspect that is already the case for a very large number of people). But even that will be, for most people, just a number they put on their tax return.

    Of course, I suppose one could argue that tax rates are in their own way as illusory as ACA provisions, and that the subsidies will turn out to be a form of easily-attackable welfare, albeit welfare for the middle class. I guess that is one of the strongest arguments for single-payer, once everyone is in the same boat you can't overturn it without drowning yourself.

    Also with regard to taxes their is no set of interest groups that benefit directly from higher tax rates (although many benefit at some remove) and a lot of groups that benefit directly from lower rates. But with the ACA there are several groups (insurance companies, hospitals, and of course beneficiaries) who benefit directly from the policies involved, and the benefit to ending them would be rather difficult to pinpoint in most cases.

    So, altogether, I understand what you are saying about the GOP and taxes (although I think it goes back much farther than you are suggesting, at least as far back as the earliest stages of the Reagan/Thatcher era). But expecting the GOP's relationship with Healthcare to play out the same way? I think that might be a bridge too far.

    I would suggest a better analogy is immigration reform. As with Healthcare, this is actually a set of complicated policies with powerful longterm impacts that are, nevertheless, rather ambiguous and contradictory in the short term. Also as with healthcare, but mostly unlike taxes (even in the Reagan and GHWB eras) the GOPs relationship with the immigration has been complicated and fraught with all manner of difficulties, reversals, flirtations, disappointments, and raging hissy fits marking a path leading first one way, then another. Finally, in the case of both immigration reform and HCR, their seems to be a gap between long-term and short-term political benefit (recall that GOP pundits were raging about HCR largely because they were afraid that even though it might cost the Democrats in the short term it would create new client voters in the long term, in a way very analagous to how they talk about immigration reform), which has never been quite the way the GOP has thought about taxes.

  2. I've made this point before, but its simply astonishing how liberal intellectuals, who pride themselves on being shrewder than their moronic conservative counterparts, are so obtuse about rich guy resistance to tax increases. One imagines such intellectuals at trendy coffee shops dropping Sun-Tzu knowingly; one further imagines they have no idea what the Art of War is about.

    Look. Rich guys aren't worried about a recession. They don't believe in Laffer Curve effects at prevailing rates. They're not concerned about Kenyan conspiracies or other exotic threats - they see this policy for exactly what it is: a beachhead.

    A beachhead from which progressives will continue to chip away until the top rate returns to FDR-era levels, or at least the 70% or so at which Laffer effects kick in. This is obvious on the briefest reflection, since Obama's tax plan does nothing to address the deficit - asking the rich to pay "a little more" is basically meaningless in plugging the country's massive fiscal hole.

    Ask the rich to pay a lot more, and now we're cooking with gas!

    In summary then, Obama's plan to rescind the Bush tax cut on rich guys may be emotionally satisfying but will do very little for the deficit. So we'll need a round 2 and beyond. What will that round 2 be?

    a) Now its the middle class' turn? or
    b) More from rich guys?

    Try to say "next up its the middle class" to a rich guy while maintaining a straight face. By the way, this is why the appropriate policy is letting the entire Bush tax cut expire - that would spread tax hurt more widely in the population, raise real revenues, and not blow furiously on the dog whistle that says "rich guys you're about to get jacked".

    1. But letting all the Bush tax cuts expire would be contractionary; letting them expire on the top 2% would be, say, a down payment on deficit reduction without reducing current demand in any meaningful way.

    2. Scott, you may be right that letting the whole Bush tax cut expire would be contractionary (though that is a moot point; middle-class people are saving more now than 4 years ago, perhaps those savings would go to higher taxes).

      In any event, if our criteria for revenue is "do what is most likely not to be contractionary", then it follows rather obviously that we should raise the top rate to the 70% or so where Laffer effects start to kick in.

      Which may be supportable public policy; though I stand by my argument - rich people will hate that for very obvious reasons. They'll talk about recessions or slowdowns or other generalized economic malaise; this is one of those cases where its gauche to tell the truth, i.e. I don't like it when the polity gives me the shiv.

      Just cause they're not saying what is obviously true doesn't mean we should take their artful framings at face value.

    3. CSH:
      The problem is that it's a slippery slope argument. Those on the opposing side of a slippery slope argument usually find it both silly and insulting (in that it assumes something about their motivations/goals that they often don't find to be true). So, you say rich folks see this as "what it is: a beachhead." In so doing, you're really kinda doing the same thing the GOP has been doing in these negotiations: "Dems, your starting point in negotiations should be X."

      None of which, of course, takes away from your point that rich folks BELIEVE such an argument, and thus want to fight a small tax increase tooth-and-nail.

      However, the problem is that it returns us to one of many problems we currently face where one side finds its opponents across the aisle to be saying things that are simply untrue.

      And, to return the discussion to the question you raised: how could one approach a negotiation when any movement of policy towards one side is viewed as a "beachhead" instead of a compromise? If rich folks think ANY increase in their taxes presages more increases, then how is one supposed to bargain? If nothing constituting movement of policy away from you is acceptable, how can democracy function?

      Honestly, I don't think there are that many Dems/libs who want rates back up to 70. 50, maybe. I think the liberal id could be satisfied with adding a higher bracket, soaking the bajillionaires. Heck, that might be a solution: 50% above 500K, no change to existing rates below that.

    4. Oh, and to be clear, I think a lot of the taxing of the rich is about the liberal id.

      But, thems the breaks in a democracy. See: "self-deportation" for an example on the other side.

    5. Matt, I agree that my language ("What this is: a beachhead") was itself inartful, since it suggests that chipping away at the top rate is part of a conscious, nefarious scheme. I didn't mean to suggest that; I honestly believe that Obama and the rest of the leadership really intend the "little bit more" rhetoric; after all, we shouldn't forget that 70% marginal tax rates would also be very painful to them.

      My point is rather, roll the tape forward, say 2 years, assuming Obama's plans come to fruition. Congress will inevitably whittle away any cost savings, rich people will pay "a little more", and our catastrophic going deficit of $1 T will have been slashed to the merely terrifying $950 B or so. Something, alas, will still need to be done.

      The thing that makes slippery slopes so troubling is that you don't realize what's happening until you are on them. To paraphrase the hipster kids, the seal will have been broken on further progressiveness in the tax code. Borrowing from Scott above, going back to the rich guy well is will be the best way to ensure that future tax increases are not contractionary, up to that 70% top marginal rate or so. So what will happen next?

      Note that I'm not a rich guy myself, and again, I am not impugning the motives of the Democrats in the Beltway or any citizens who support them. But I understand why rich guys look at the tea leaves of this small tax increases and see much worse things in their personal futures.

      Which is why, finally, even though I agree with Scott that there is greater risk of economic contraction with letting the entire Bush cuts expire, I believe that's the best thing for our country. We have all, at our own levels of prosperity, been sucking at the trough of too-low taxes for too-long; I see lots of unwelcome consequences from asking some citizens to step away a little while letting others keep feeding indefinitely.

    6. Fair enough, CSH...given your long history of rational dialogue here, I assumed you weren't meaning insult, and I was just trying to use it to springboard to another idea.

      However, the point itself raised, I think, a VERY interesting conundrum: suppose that the GOP base (whether rich or their defenders or true believers in Hayek & Friedman, it makes little difference) does see that any concessions to higher taxes/spending are tantamount to a slippery slope and death by a thousand cuts. I've sensed some of this theme coming from the right for more than a few years, and I don't think it's necessarily "wrong." In such a world, whether ultimately correct or not, it is perfectly rational for conservatives to oppose any compromise whatsoever that moves policy even one iota towards the left, and for more than just "I don't prefer that policy" reasons, but that there's a sharp discontinuity in the conservative preference function at anything to the left of the status quo. Thus, conservatives might seek to move the ball while on offense (ie, having a governing majority, but, while in the minority, they have every incentive to, essentially, make sure that legislating never happens.

      Whereas the party that sees a compromise as just another point on a continuum of possible outcomes would prefer to get it closer to their ideal, a minor loss on one issue is not tantamount to failure.

      So, if conservatives/the GOP really do the the world as being one of slippery slopes in every direction, the whole notion of compromise goes out the window. That troubles me greatly; it essentially is a world in which democracy is impossible. Which could be our world!

      As for the policy at hand, I'd prefer tax increases above 100K personal income, myself. That starts to make real budget numbers, whereas this "tax the rich at Clinton rates" is mostly just about feeling like winning elections should mean SOMETHING.

    7. I, for one, am willing to concede the "slippery slope" arguement in that I think higher taxes may well be necessary to balance the budget when the economy is in a position to afford them. But the main problem with most discussions of the budget these days is that people treat the deficit solely as a budgetary issue and it isn't. What do I mean by that? They see a deficit of $1.2 trillion and say, "Well, the answer is to come up with a combination of tax increases and spending cuts that adds up to $1.2 trillion." That approach will never happen. The answer is to address the sources of the deficit, which in at least some cases is not located in the budget per se. Some of those sources are relatively short-term and some are long-term. The short-term problems are: (1) the Bush tax cuts (we've been in deficit ever since thay passed), (2) two unfunded wars (those are coming to an end; the only problem is convincing ourselves that we don't really need the same defense budget in peacetime as in wartime), and (3) the recession, which automatically reduces revenues and increases expenditures. The Bush tax cuts can eventually be undone in some shape or form without destroying the economy. (If the economic damage done by letting them expire is comparable to the economic advantage of passing them, then we should do all right.) The other two should almost take care of themselves if we don't get in the way. The main long-term source is health-care costs, but addressing those by slashing the Medicare budget is equivalent to saying "Our financial situation will be okay just as long as we don't pay the bills." If health-care costs are driving us toward some sort of crisis, then shifting the cost from the government back to society doesn't prevent the crisis; it just dumps it on people who can't afford it, and eventually it will be a government problem again. In fact, it may make the crisis worse, since Medicare is currently the most cost-efficient system we have. So it's the cost of health care, the source of the deficit, not the Medicare budget per se, that has to be addressed.

  3. thanks for sharing.


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