Conventional wisdom says that Obama put one over on the GOP — getting them to accept higher taxes on the top 2 percent without so much as giving up a dollar for education or any other government spending program. Just why McConnell and Boehner were such lousy negotiators when faced with a foxy president is the puzzle the Washington pundits are trying to pull apart.
The real story is quite otherwise. In the end, Republicans captured the default position on tax and spending policy at relatively limited cost to their high-income constituents. From now on, by their fingernails as the country drops from one cliff to the next.
The default position that Republicans have now reversed came into being when the Bush tax-cut compromise was passed by Congress in 2001. Bush got his tax cuts—but only for 10 years. When the 10 years were up, taxes would return to the high levels established when Democrats controlled the action in 1993.
That 10-year deadline arrived on Dec. 31, 2012, giving President Obama and his allies on Capitol Hill the default position. If Republicans did not agree to a new tax bill, a major tax increase was scheduled for automatic imposition on most segments of the American public. Whether this major tax increase would have a major adverse impact on the economy is something we will never know.
What is certain is that an automatic tax increase would have had a major impact on the party that got blamed for it — just as it did for Democrats when that high tax was first enacted. They were over-run in the 1994 elections, leaving Clinton without a legislative majority for the rest of his term in office.
With the latest tax bill in place, the Bush tax cuts became permanent, no longer subject to return to the higher levels of the past. It is true that the new permanent tax rules boosts taxes for singles with income above $400,000 for singles and couples with income above $450,000. That’s more of a tax increase on the top 2 percent than Boehner first was willing to concede, and perhaps more than they would have had to concede in the end, had House Republicans backed Boehner when he really needed their help. But it’s a noticeably higher cut point than the $250,000 proposed by the president. In the end he got only $600 billion in revenues, not much more than a third of the $1.6 trillion he originally demanded.
Going forward, all the debates over the debt will focus on spending. The first round will be governed by the automatic cuts in spending that will take place within two months. The Democrats must agree to entitlement cuts or see one of their other favorite spending programs eliminated. Even education expenditures will be automatically cut this coming March if Democrats do not come up with a solution.
Going forward, all expenditure bills will have to pass a Republican-controlled House of Representatives — at least through 2014 — and it is hard to see how the President is going to get the education spending and his other favorite programs unless he makes concessions on entitlements.
Of course, Democrats will insist on higher taxes. But House Republicans will be under no pressure to compromise.
The Republicans did not win a knockout that any pundit could comprehend. But an impartial panel of judges would give them the win by decision, if only by a divided vote.
Or, to mix our metaphors even further, the shoe is now definitely on the other foot.
-Paul Peterson
