Bad Bargains, Moral Bankruptcy and Negotiating with Blackmailers

Even though it's now pretty much a done deal and much of the relevant ground I've been over before, I'd like to comment a little on the tax plan that President Obama and the Republican leadership came up with. There are two major questions here. One is whether the deal in of itself is a good one; the second is whether it would have been better to have no deal at all than to have the one we ended up with. The answer to the first question, taking both the good and bad parts of the plan into consideration, is no. The answer to the second question is maybe, depending at least in part on how the passage of the tax plan ultimately affects several other key measures.

The centerpiece of the tax plan is the two-year extension of the Bush tax cuts. As I have said before, there is no sense in extending the tax cuts for earners in the highest income bracket. They don't need the money, most of them won't spend it anyway but will save it (meaning it won't stimulate the economy), and allowing them to continue to pay lower taxes increase the budget deficit by a large amount (far more than many of the programs the conservatives want to cut). The assertion that higher taxes would hurt many small businesses is wrong, as few fall into this category (and many that do are law partnerships, private medical clinics and so forth), and in any case if a small business has a need for an additional employee, they aren't going to refrain from hiring one just because they are paying slightly more in taxes. The Republican refrain that no one should have their taxes raised in a recession is just a nonsensical sound bite, one which attempts to imply, aside from the questionable economic arguments mentioned above, that everyone is suffering equally and we don't want to see anyone hurt by more taxes, like someone who makes half a million dollars a year is really going to suffer because they have to pay twenty thousand dollars more in taxes. It's also worth reiterating that even had tax rates for the highest income bracket gone up, they would have still been under 40% (as compared to the current rate of a little over 35%), which is not very high compared either to other countries or past tax rates in the US.

However, as bad as the Republican insistence on lower tax rates for the relatively well-off is, this isn't the worst part of the tax plan. That "honor" has to go to the estate tax. The estate tax had also been cut temporarily, but without this bill it would have gone back to the old rate, which if I recall the numbers correctly was 55% on estates of more than US$1 million. But the Republicans insisted on cutting it drastically, making the rate 35% on individual estates of US$5 million, or US$10 million for married couples. This will benefit a very tiny percentage of Americans, and it won't even be the people who actually earned the money, but their heirs. I know if I was going to inherit $US2 million I wouldn't complain if I had to give up half of it. Sure, a million dollars may not be what it once was, but it's still a pretty decent sum, especially if you don't have to earn it yourself. So why on Earth should we do this tiny percentage of wealthy people's children a favor when it'll add substantially to the deficit? It's absurd. This once again shows that the Republicans really are the party of the rich, or at least of the selfish rich (quite a few wealthy people have said they should pay higher taxes, whether income or estate taxes).

Then there was the temporary payroll tax cut. Obama apparently supported this idea as a stimulus measure that would benefit a much wider segment of the population than the Republicans' cuts for the rich, but it has its problems too. The payroll tax pays for Social Security, which for the time being is in the black. But having made the cut, there is a danger the Republicans will try to make it permanent (by once again crying tax increase if the Democrats try to allow it to go back to the original rate, just as they've done this year with the income tax rates). If that happens, Social Security will not remain solvent for nearly as long as it would have, and the Republicans will have an excuse to try to cut or privatize it (when the best way to boost Social Security in the long term is to increase the payroll tax -- not by raising the rates, but by raising the ceiling, since it is currently only taken out of the first US$100,000 in salary). If this doesn't happen, fine. But if it does, the payroll tax cut will also turn out to be a big negative.

Perhaps the only significant positive in the deal is the extension of unemployment benefits. Allowing them to expire would leave a lot of people with no income at all, and despite right wing assertions to the contrary, most of them are not just freeloaders who won't go out and look for work (though of course there are some people like that), as most businesses simply aren't hiring. Giving those out of work some money to spend will also stimulate the economy (more than lower taxes for a few wealthy people will), besides allowing them to put food on the table.

I seem to recall that there are also a few tax incentives for alternative energy and things of that sort in the bill, though I don't know the specifics. If so, that's a good thing. But given its bad parts, I can't say that the deal sounds like a good one overall. If there were no other considerations, I'd say it'd be better to let everyone's taxes go back to the old rates, which at least would cut the deficit by a large amount (or rather keep it from getting bigger, as past budget projections have assumed that all the cuts would expire). It's worth noting that keeping income tax rates the same won't stimulate the economy either, as people aren't getting more money, just keeping the same amount as before. The only substantial stimulus will be from the payroll tax cut and the extension of unemployment benefits.

As I stated earlier, given that this deal was overall more bad than good, does that mean Obama and the Democrats would have been better off rejecting it in its entirety? If the only things at stake were what the tax plan itself covered, I would have said yes. I would certainly prefer not to sacrifice those who are living on unemployment benefits (as I implied in the previous paragraph, letting taxes go back to the old rates for everybody would not necessarily be a bad thing), but considering the long term problems that this deal may cause, problems that will eventually affect everyone, that might have been the better choice if they were the only people to be sacrificed to the Republicans' intransigence. But aside from blocking any tax deal that didn't favor the wealthy, the Republicans -- even the few supposedly more moderate ones -- had pledged to block all legislation in the Senate until the tax plan was passed. This meant that a number of very important measures were in danger of not getting through. When I started writing this just after the tax deal was passed, it was still not certain which of them would make it. Now votes have been taken on two of them, with a third due to voted on any time now.

The first of these measures was the repeal of "don't ask, don't tell". This was something that should have been done a long time ago, and with the Pentagon having completed a study showing that repeal shouldn't cause any major problems, there was no longer any excuse for waiting, especially since the law would probably get overturned in the courts sooner rather than later. Nevertheless, there was still substantial Republican opposition, led by the increasingly erratic John McCain (even those who are disappointed in Obama's performance should be happy McCain didn't end up as US President), even though he once said he'd support repeal if the military leadership was in favor (apparently he has decided since that even if a majority of the military leadership, including the very top officials, are in favor, that isn't good enough; the entire leadership has to approve). But even worse, if the Republicans had continued to block all measures because of a lack of an agreement on taxes, repeal would have depended on the next Congress, where it would probably have failed. So one positive of the tax agreement was that a repeal of "don't ask, don't tell" has now been approved.

The second major measure was the Dream Act. This would have provided a path to citizenship for young people who were brought to the US illegally by their parents when they were children if they went to college or joined the military. To put this into perspective, many of these people were toddlers or preschoolers when they came to the US, so they have no memory of any other home. Some of them were not even aware until they were nearly grown that they weren't American citizens. And yet the vast majority of Republicans voted against this bill. One idiotic member of the House from Texas (Barton, if I recall correctly) made some statement about not "rewarding criminals". Only someone too stupid to understand the type of situation the bill covered, or, more likely, someone completely morally bankrupt, without the least shred of decency, could call someone who was brought to the US (the vast majority of them had no choice in the matter) as a child -- and as I said, in many cases at an age where they weren't even aware of what was happening -- a "criminal". Even calling their parents "criminals", while technically accurate, is a sign of perverted moral sense, as it seeks to put people who are simply seeking a better life for themselves and their families in the same category as murderers and rapists (not much different from 19th century England, where a father could be hung for stealing a loaf of bread for his children -- as if such a person was the same as a criminal who committed robbery and assault out of pure greed). But to call the children "criminals" is beyond disgusting.

Yet, unbelievably, the Dream Act didn't pass (actually it won a clear majority, but as usual, its Republican opponents were filibustering it, and there weren't quite enough votes to overcome the filibuster). Frankly, in my opinion, this is worse than if "don't ask, don't tell" hadn't been repealed. Gays in the military were being deprived of their careers, which is bad enough, but the young people covered by the Dream Act are in danger of losing their homes and getting deported to countries that in many cases they have little or no memory of. This is a terrible injustice, and Obama's agreeing to a bad bargain on taxes didn't avert it. So that's one more strike against the tax deal.

The third major measure is the ratification of the New START treaty with Russia. Again, there is no reason not to pass this and many reasons to do so, not least of which is without ratification, there will no longer be an arms control agreement between the world's biggest nuclear powers. The agreement that has been signed is by pretty universal consensus among experts and US military leaders, a good one from the US's perspective. In a misguided attempt to win over Republican opponents, Obama even agreed to spend more on upgrading the US's nuclear arsenal (once again, when it comes to things like this, the deficit doesn't seem to matter to the Republicans). One laughable complaint is that under the treaty the US will have to cut more than the Russians, because it has more weapons to begin with. That's like a situation where two people are pointing guns at each other, and the one with ten shots on his gun (as compared to, say, seven for the other guy) is reluctant to agree that both reduce the number of bullets they have loaded to four each. Both sides can still kill each other many times over, so who cares? In any case, this seems to have a good chance of passing, which would be a point in favor of the tax plan which cleared the way for it.

Of course one big problem with judging the merits of Obama's deal with the Republicans by the success or failure of other measures is that essentially the Republicans (who ironically criticize anyone who negotiates with "terrorists") are being rewarded for committing blackmail. Like other such situations, such as kidnappings for ransom, whether or not it is ever wise to give in is debatable. However, if Obama was going to submit to Republican blackmail, he should at least have fought for a better deal. Either he should have gotten a better tax deal, or he should have asked for a commitment from the Republican leadership not to support filibusters on any of the above three measures. As it turns out, at least one and quite possibly two of them will pass anyway, but considering the importance of the one that didn't, and the fact that even those that did pass might well not have, a bargain with the Republicans that didn't include such a commitment was not a good deal. Some say the mere ability of Obama and the Republicans to come to an agreement on anything is a positive development is a good thing, and there is something to that argument. But if all their agreements favor the Republicans this much, it might be just as well to not to make one in the first place. If the arms treaty is ratified, that combined with the end of "don't ask, don't tell" might just barely make the whole thing worthwhile, but not by a large margin. We'll have to hope Obama learns to bargain harder once the new, more right-wing Congress comes in.