Credibility wetdreams
by digby
You have to love this from Joe Nocera in the New York Times:
Judging by the first two presidential debates — I’m writing this on the eve of the third — there is one area where Mitt Romney and President Obama are in at least quasi agreement: the need for serious tax reform.
“I want to bring the rates down; I want to simplify the tax code; and I want to get middle-income taxpayers to have lower taxes,” said the Republican challenger during the second debate. He added that he would limit “deductions and exemptions and credits, particularly for people at the high end” — while getting us “on track for a balanced budget.”
In response, President Obama said that he, too, wanted to bring rates down for the middle class. But, he said, “in addition to some tough spending cuts, we’ve also got to make sure that the wealthy do a little bit more.”
[...]
[T]he need for tax reform is probably more urgent now than it was in the 1980s. Then, the deficit wasn’t nearly the problem that it is today. Now, tax reform is just about the only politically palatable way for Congress to begin the process of lowering the deficit.
Assuming that the deficit is the primary problem here, does it really make sense to "bring rates down" and lower corporate taxes? Sure, closing loopholes makes sense and "asking the wealthy to pay a little bit more" is a good idea, but really, if the deficit is so goddamned important, why do they insist that we must lower rates at the same time? It makes no sense.
Well, guess what? There is a reason and it's as stupid as the myth of the confidence fairy and the bond vigilantes. We'll call it the credibility wet dream:
Lowering tax rates will give Congress and the president — whomever he turns out to be — cover for broadening the tax base, reforming entitlement spending and raising additional revenue.
In order to close the deficit they must cut be allowed to cut taxes so that they will have the credibility to raise taxes. That is what they are saying.
Now Chuck Shumer has thrown an interesting monkey wrench into this debate by saying that we shouldn't lower the tax rates. But I trust Chuck "Wall Street" Shumer as much as I trust the confidence fairy on this stuff. Ezra Klein interviewed him a few weeks ago and he said all the right things on the tax rates. But he also said this:
EK: I want to go back to something you said a moment ago: that our two biggest problems are median wages and deficits. I know a lot of folks who would say our two biggest problems are jobs and jobs. And as for deficits, real interest rates are negative. The market is begging us to take their money. This focus on deficits, these folks argue, is hugely damaging. We need to be spending our time and political will on jobs.
CS: Here’s what I tell my more liberal colleagues: We’re like a blindfolded man walking towards a cliff. If we keep walking in that direction, we’ll fall off, like other countries have fallen off. You can argue whether we’re 500 yards or 5,000 yards from the cliff, but it’s unsustainable. And it also gets away from helping the middle class, as the deficits mean we don’t have the money to pay for some of the things like education and scientific research that expand middle-class incomes.
So I don’t agree. I don’t think the deficit is our only problem. But it’s number two, and it’s real.
I'm hoping that he is trying to decouple "tax reform" from the fiscal cliff negotiations. And certainly, if he manages to convince even one Villager that "tax reform" doesn't mean lowering rates so we can raise rates, he will have done us all a solid. But in the end, I have a feeling that this notion of lowering rates in order to buy the goodwill they need to raise rates is not going to be so easily dismissed.
And recall that in the summer of 2011 when Boehner were within an inch of a Grand Bargain that cut all the social programs, tax reform wasn't in the mix. They don't need it to do a very bad deal.
Here's what Chuck has in mind in the short term:
EK: But more specifically on process. You guys won’t be able to get everything done in the lame-duck. So how do you build the tax reform process, however it ends up working, in such a way that you can trust it?
CS: The more detail the better. You can’t just say we’ll raise this amount of revenues and keep distribution the same. You need some real detail here. You need to lock in what the rates will be. If you need $1.5 to $1.8 trillion in revenues, you can gain about a trillion dollars from raising the top rate and having the estate tax go up, and you’ll be able to find another $500 billion on the expenditure side That you could get from high-income people. So we need that level of detail. You can’t fudge it.
Just a reminder: this is a negotiation. And that means Shumer is making his demands, very likely with the knowledge that he won't get what he wants. So the question isn't whether this is a reasonable ask, but what it is he's really after. I don't know the answer to that, but I do know that the target they've all arbitrarily agreed upon initially is 4 trillion.
Nocera outlines all the reasons why nothing has really changed and the resulting high probability of a train wreck in the lame duck session. But he still hopes for the best:
Right around the corner lies the “fiscal cliff.” It offers Congress and the president a golden opportunity to begin a process that will lead to tax reform and, ultimately, deficit reduction.
I keep hearing a lot about "beginning the process that will lead to ...." so I'm getting the feeling that we're going to see another reset. Which is better than a Grand Bargain any day.
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