Saturday, January 05, 2013

Slow Train Running, No Tracks?

Round 1A
In loyalty to their kind,
   They cannot tolerate our mind.
In loyalty to our kind,
    We cannot tolerate their obstruction!
"Crown of Creation" - Jefferson Airplane (Kantner)

Sen. Harry Reid has decided to delay the convening of the new Senate's session by a couple of weeks.  I believe this is the equivalent of a "cooling-off" period, to allow the Senate to figure out how it will deal with the first issue it must solve.  It is incumbent on the Senate to decide, at the very outset of the session, under what rules it will operate, so this is the opportune moment to address the possibility of some reform of the filibuster.  The stage is set for an immediate partisan confrontation, but the stage lights are not yet turned on.

The current rules require a two-thirds majority to change the rules, but older rules  also indicate that the rules may be set, by a simple majority, at the beginning of a Congress.  Which of those requirements would prevail is but one of many uncertainties about how this very significant issue will play out.

Senate Republican Minority Leader Mitch McConnell, who recently served as the key Congressional negotiator in the compromise producing the tax deal (see below),  has laid down a line in the sand:  if there are to be any hopes of future cooperation between the parties in the Senate, the 55 Democrats must not seek to set new filibuster-limiting rules by a straight party-line vote (i.e., the simple majority, rather than the two-thirds vote).  The simple majority approach to changing the rules has revived discussion of a "nuclear option".

There are two sets of filibuster-reform proposals circulating, one with partisan sponsorship that is more far-reaching, and a watered-down bipartisan version designed to achieve the two-thirds majority. Neither would elminate the ability to filibuster a given bill or nomination indefinitely, but the first, through the common-sense requirement that the debate continue by actually continuing the debate, would make it impractical to do so repeatedly for all undesired legislation, as currently occurs.  The second one would apparently preserve the ability to use procedural votes to block bills and nominations from proceeding to the floor.

I would prefer a negotiated solution to declaration of open war so early in the Congress, when so much still needs to be done. There is probably a compromise that can be arranged, and this delay, although not publicly acknowledged, seems designed to seek to find it. The minimum standards are agreement that individual Senators can no longer block consideration of a nominee (as is currently done), and that a single cloture petition/vote with 60 Senators can move a bill to a vote with a limited additional debate.  This would preserve the "unlimited debate" concept which even some Democratic Senators would recognize, but would reduce or end abuse of Senatorial privileges and maneuvering to prevent the exercise of the will of a super-majority of 60 Senators. 

The Tax Deal
In accordance with my usual practice of auditing the accuracy of the forecasts and predictions I make here, we will start by assessing the deal's key components and whether I had them right.  Then, we will proceed to puncture some of the prevailing talking-head myths that have emerged since the deal was done.

The biggest surprise, the one I missed entirely, was that the deal would not include any substantial spending cuts (just enough to cover the sequestration cuts postponed for two months, so that there is no active decision that increases deficits in the deal).  I did suggest, in my first effort to "talk them down from the cliff", that the decision to extend the tax cuts would be the easiest upon which to find agreement. 

As the dread date drew nearer, I got more specific in my second post on the tax cut provisions I expected. (I will withhold comment on the spending cut aspects until those are actually addressed.)  Here is the relevant quote, with my hindsight comments italicized:
I'm looking for two gradations in the higher income rates, one for those with income over $1 million and one for $250K - $1 million;  (wrong! there's only one, though the $400K cut was a compromise along the lines I anticipated) I'm looking for the proposed deduction cuts to be smoothed out to reduce the impact on moderate taxpayers, for a substantial shift in the income level when the infamous Alternative Minimum Tax begins to apply, and for tax rates on capital gains and dividends to be increased but to have a top rate lower than the marginal rate for the highest income ranges.  (all correct) The surprising thing is that both sides seem ready to throw the payroll tax reduction "holiday" of the past couple of years under the bus; this is surprising because the economy's recovery is still relatively weak, but the payroll tax cut is one that, by general agreement, can not be extended indefinitely (the money is needed to support the trust funds for Social Security and Medicare, which are shrinking);  I thought it would be phased out over the next two years, but both sides seem to need to tote that money up for the promised savings they want to tout. (Yes, that really happened, probably the most disappointing aspect of the deal for me, but something that I would blame on the Democrats in Congress rather than the Administration. )
Two other auditing points from the latter post:  I did anticipate that the tax agreement would get passed just after year-end, so that it would be a "tax reduction" for most people.  I predicted $1 trillion in total revenue increases, but there were only $600 billion in the agreement.  President Obama is well aware of the fact that revenue reform is only half-completed, and has made a point of saying that he is expecting further revenue increases in the future to go with anticipated spending cuts--I will stick to my estimate, with $400 billion more coming through closing of loopholes and reduction of the range of deductions.

Now, for some myths:
1) That this was not a substantial agreement--Apart from fixing the AMT and the annual Medicare adjustment, the bill set down permanent tax rates at sustainable levels.  Tax code reform debates remain (they could not quickly be settled), but an issue that has been kicked around for 10 years was settled with some finality.  
2) That this was a surrender by a) President Obama or b) the Republicans.  The argument in each case is that Obama, or the Republicans, gave some ground on things they said publicly that they would not (Obama on the $250K increase; the Republicans that they would only agree to revenue increases if there were significant spending cuts.)   Both needed to give ground to have any possible agreement on this, the most overtly partisan division in the general discussion.
3)  That all the negotiating leverage now goes to a) the Republicans, or b) President Obama. The argument for a) is that, now that the threat of tax increases for the middle class is removed, the Republicans can more easily stonewall and get what they want.  For b), it runs along the line that the Democrats proved that they can split the House Republicans and roll the Senate Republicans, that Speaker Boehner is weak, and that therefore the Democrats have the advantage.  The Republicans have both a strategic advantage in the upcoming negotiations in their advocacy of spending cuts, which are popular with the public, and a tactical advantage in their potential ability to use the debt ceiling as a hostage forcing concessions.  The Democrats have the countervailing advantage that the specific cuts the Republicans would want are generally all unpopular, and potential gamebreaker strategies that would allow them to defy the statutory debt limit through a constitutional challenge (14th amendment) or a Treasury gimmick (coining the trillion dollar coins and putting them in a vault).  As for Boehner, the House of Orange continued its infamous reign, and after the various embarrassments, the Republicans have recognized that they must pull together or lose what leverage they have.

A Look Ahead 
The final myth I would like to demolish is the argument that things can only get more partisan and confrontational from here.  As I noted in myth 2) above, though it was easy for both sides ultimately to accept tax cuts in the guise of tax increases (or the other way around), drawing the line between the winners (with the exception of the payroll tax, the lower income taxpayers) and the losers (those over $1 million income or substantial unearned income, really) was the politically difficult compromise.

Unlike the question of tax rates for the wealthy, the decisions that remain to be made are complex, and will be difficult to conclude, but none of them divide neatly along partisan lines, really.  The debt ceiling, everyone would agree, must be raised in the end.  A long-term path toward reduced deficits must be achieved, and there isn't really a partisan split on pacing (momentum must increase over the 10-year planning period everyone agree upon) or the total targeted amount of deficit reduction (something like $4 trillion).  There probably isn't that much disagreement along partisan lines on which tax loopholes and deductions should be closed off, though there will be specific "revenue enhancements" that specific Congresspeople will seek to preserve for favored clients:  it will be important for the final outcome whether those pet perks will be preserved for any, all, or just the most powerful (my betting would be the latter).

Apart from the big ones--defense and entitlements--there will be partisan disagreements on which governmental programs should be cut, and by how much.  It was in this area that the sequestration across-the-board cuts would be tempting.  Simpson-Bowles identified some on a fairly non-partisan basis, and there may be general recourse to these as a means to avoid getting bogged down.   Another, likely, outcome is an agreement on the quantity and timing of these cuts, and some sort of agreement on how to resolve them (in committees, perhaps?)--kickin the can, again, but over a defined field of play.

Defense will be an interesting area; the Democrats will be somewhat at war with themselves (Obama Administration militarists vs. peaceniks) and the Republicans will be of two minds (knowing that defnese cuts must be made, but, like the Democrats on social programs, uncomfortable with any specific cut).  The key question--more or less cuts?--will be divisive within both parties, and I would bet on less cuts somehow winning out.

The question of investments--in infrastructure, education, energy--will be a divisive one.  Republicans' talk is all about reducing spending, and they won't want to consider these, but the jobs issue and competitiveness issues remain of prime importance, and Democrats will insist that some investments, mostly in the short term, go into the mix of any broad spending program. Because this is going against the trend so strongly, I would expect that the final agreement will include no more than $100 billion of these new investments, and there will be some strings attached to them.

Finally, the question of entitlements, once again, and again I refer you to "Talking Them Down Off the Cliff--Part 2", in which I suggest the logical outcome for each of the three principal areas--Medicaid, Medicare, and Social Security (a fourth would be veterans' benefits, but I would suggest they will be inviolate throughout the debate, as they probably hsould be).  Here, I would say, the pressure will be most squarely on the Democrats, who will have a difficult time sustaining a position that no cuts need be made.   I'm not certain they will do so, nor that it is fully in their political interest to do so: certainly it is a position that is, in the long run, indefensible.

I give some credit to David Lauter, writing in the L.A. Times (and the Chicago Tribune, where I saw it), for identifying the key divide (on Medicare and Social Security) as being the young vs. the old, and for pointing out the contradictions within the parties.  The Democrats rely increasingly on the support of the young, while the position against cuts associated with their party is viewed as favoritism to the old (really, the Baby Boomers, as the seniors will not be touched, both parties seem to agree).  The Republicans, the opposite.  It will be in both parties' interest to contort their positions so that those perceptions are modified, and to me, that means a compromise.  And, as I've said before, that means increasing the retirement age slightly on Social Security (and not on Medicare; rather the opposite), and backing away from Obama's alleged willingness to reduce the cost of living multiplier on it.   On Medicare, the solution needs to be both increase in payments (means-tested) and, listening to the consensus of medical professionals, shifting from fees based on quantity of service toward fees based on the value of those services to individual patients.

No comments: