Sunday, December 9, 2012

Better Late Than Never

Robert Kuttner
Co-founder and co-editor, 'The American Prospect'

President Obama has belatedly grasped that holding firm on tax increases for the top 2 percent, and defending Social Security, Medicare and Medicaid against needless cuts, is good politics and good policy. As his Treasury Secretary, Tim Geithner put it on Fox News Sunday, "Why does it make sense for the country to force tax increases on all Americans, because a small group of Republicans want to extend tax rates for 2 percent of Americans, why does that make any sense? There's no reason why it should happen."

Geithner was even more explicit on CNN, when interviewer Candy Crowley pressed him on whether the Administration was really prepared to go "off the cliff" if Republicans refused to raise tax rates on the top 2 percent.

"If Republicans are not willing to let rates go back up [on the top 2 percent" Geithner said, "and we think they should go back to the Clinton levels when the American economy did exceptionally well, then there will not be an agreement."

In his budget proposal, the president offered no cuts in Social Security, and only $400 billion over 10 years in Medicare and other savings, money that can be gotten by allowing Medicare to negotiate bulk discounts with drug companies and other administrative savings, without raising the eligibility age or otherwise cutting into benefits.

The Republicans, meanwhile are revealed as the people who would push the economy off a cliff in order to fight for tax breaks for the richest 2 percent; the party that would rather cut benefits in Medicare and Social Security than have the wealthy pay even the relatively low tax rates of the Clinton years.

It was Winston Churchill who said that you can always count on Americans to do the right thing, after they've tried everything else. Obama, belatedly, is doing the right thing.

He tried taking big savings out of Medicare in order to finance his Affordable Care Act. The Republicans pilloried him for it.

He tried pivoting to fashionable austerity, appointing the Bowles-Simpson Commission to propose far deeper budget cuts than the economy required. The commission majority report offered a deflationary program of cuts in Medicare, Social Security, and no rate increases on the taxes paid by the rich. Mercifully, the commission failed to get the necessary super-majority for its proposals.

And he tried offering cuts in Social Security and Medicare in order to get a budget deal in 2011 with House Speaker John Boehner. But the refusal of the Republicans to consider even a penny of tax increases saved the President from himself.

Now, as a last resort, President Obama has come around to sensible economics and smart politics -- no cuts in social insurance benefits, no backing down on tax hikes for the rich, no deeper deficit cuts until the economy is stronger. His plan even proposes $50 billion in new public investments -- not enough but a big step in the right direction.

What's so heartening is not just that Obama is helping voters appreciate what Republicans really stand for but that he is turning his back on the echo chamber of deficit hysteria ginned up by Wall Street as a way of cutting social insurance and protecting low tax rates on the richest. Seeing Pete Peterson and his corporate deficit-hawk cronies lose this fight is as satisfying as seeing the Republicans lose.

So what happens next?

The Republicans will continue to huff and puff that it's Obama's fault if taxes go up for everyone. But the fact is that the Senate has already approved a continuation of the Bush tax cuts for the bottom 98 percent -- all the Republican House has to do is concur and Obama will sign the bill into law.

The business elite, through the corporate-funded campaign "Fix the Debt" campaign, will continue to warn about the perils of the automatic tax hikes and spending cuts -- the dreaded fiscal cliff -- and press the two parties to meet each other halfway.

But domestic spending has already been cut by $1.7 trillion over 10 years under the terms of the 2011 budget deal. Domestic spending has been cut enough. Tax rates on the rich are already at a postwar low, and it hasn't levitated a depressed economy. The Democratic Party have already met the GOP more than halfway. And each time, the Republicans use the concession as the new starting point.

If Obama hangs tough and the budget briefly goes "over the cliff" in the form of automatic tax increases for everyone and mandated indiscriminate spending cuts that risk sending the economy back into recession, the Republicans are at last set up to take the blame that they richly deserve.

Obama seems willing let that happen, in order to keep the pressure on Republicans to allow taxes to rise on the rich.

The risk is that when the negotiations finally get to the end game, and Republicans are forced accept the tax deal, Obama may succumb to pressure to cut Social Security and Medicare, so that he can say that he, too, gave ground on issues that were difficult for his party. The risk is that he will listen to his inner bipartisan.

That would be a huge mistake. The Republicans have been unmasked for who they are. The best thing Obama can do is to continue to hold the high ground of this debate. The Republican position is entirely at odds with the vast majority of voters. If Obama doesn't fold a winning hand, eventually the Republicans will have to come to him.

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