Friday, November 12, 2010

Caving In?

A big battle is shaping up in Congress in the next few weeks over extending the Bush tax cuts. If Congress does not act before the end of the year, all of these tax cuts will expire automatically, an outcome that is favored by hardly anyone. Instead, Republicans would prefer that all of the tax cuts be made permanent, while Democrats favor making the tax cuts for those making under $250,00 a year permanent, while allowing rates to rise for those making above that amount. There are also a number of intermediate possibilities: the most prominent one being floated would allow the middle class tax cuts to become permanent but extend tax cuts for the wealthy for a couple of years. But if the deadline is allowed to pass, neither side will obtain its preferred resolution, or any intermediate resolution. Instead, all of the tax cuts will simply expire by operation of law, and the American people will probably be mad at both parties for allowing everyone's taxes to rise.

Both sides know that if they let the deadline pass, both sides will certainly lose. You might think that would make this tax debate easier to resolve, but it doesn't appear that it will be easy at all. Why?

What seems to happen in politics is that political preferences become positions, and positions take on symbolic importance. The relative ability of each party to achieve its positions also demonstrates its political power.  Because these positions have become so entrenched, we are incapable of having a rational debate over whether it makes sense to tax millionaires at a rate of 35% versus a rate of 39%, or some other rate. I would argue that it is absurd to be attaching enormous significance to whether the top tax rate should be 35% or 39% considering that as recently as the 1960's, the highest marginal income tax rate was over 90%.  We can't have a rational debate about that because one side has staked out a position that taxes are already too high, and any increase in rates would violate its cherished principles, while the other side has taken the position that allowing the highest marginal rate to increase is an important demonstration of the need to undo what the previous administration did, and restore more progressivity to the tax system. Furthermore, both sides are now using language that will make it harder to achieve any sort of resolution. Emboldened by their electoral victories, Republicans are marching back to the lame duck session asserting that they will refuse to compromise on this matter of principle. Meanwhile, supporters of the Democrats' position are already expressing their disgust at any sign that the Democrats may "cave in" to any of the Republicans' demands. Again, remember that both sides lose if they can't make a deal, so all this posturing could amount to a game of chicken, in which one side might have to give in to avoid disaster. As in all games of chicken, the "winner" is the one who is most willing to risk mutual destruction. Alternatively, both must try to find a face-saving result that will allow both sides to claim that they won, or else they will be attacked by their own constituents for displaying weakness or betraying their principles.

Could this sort of posturing have been avoided? Only if the parties had been able to frame the debate in a way that recognized each sides' true interests, instead of as a contest of wills. What should have allowed a more rational debate to occur is the recognition that both sides share some interests, and also that each side has interests that internally conflict. Republicans say they are interested in stimulating the economy and reducing the size of government, but they also say they are interested in reducing the deficit. Tax cuts might serve one purpose but make it harder to achieve another. Democrats are also interested in the conflicting goals of stimulating the economy and reducing the deficit, but they would prefer to stimulate the economy by increasing public works spending, rather than reducing rich people's taxes. The parties' common interests should suggest numerous ways of resolving the issue of an appropriate tax rate for millionaires in a way that satisfies their shared goals of long term deficit reduction and short term economic stimulus. Wouldn't it be a tremendous sign of maturity in our political debates if both sides could announce that they have agreed on a result that satisfies a large measure of their political goals? Instead both sides have fallen into the trap of trying to achieve a result that they can portray as a victory over the other side. Both sides have also tried to taint any other result as an illegitimate compromise, or as one side "caving in" to the other's demands. This kind of language makes it harder to solve what should be a solvable problem.

So what I would suggest to critics on both the left and the right is that instead of getting mad at our leaders for considering the possibility of compromise, what we ought to be mad about is their inability to work together to get a bill passed that the majority of Americans would probably support.  Having our elected leaders work together constructively to solve problems was the change I thought we voted for in 2008.  But we need to pressure them to do that, instead of attacking them for any signs that they might be willing to recognize the legitimacy of any opposing points of view.  

I don't want to get into a big debate about the merits of these tax proposals.  Actually, I don't mind.  I could debate tax policy all day, but that is not the point of this post.  (If it were up to me, we'd be phasing in an increase in the top rate back up to 50%, where it was during Reagan's presidency, and we'd also be talking about a VAT and a big tax on gasoline, and then we'd be discussing what to do with the budget surplus, like we did in the 90's.)  But the point of this post is that we ought to recognize that people have a range of legitimate views on how to make our tax system more fair, that in a democracy all views have some weight, and that our elected leaders ought to be able to sit down and work this issue out like grown-ups, instead of fighting it out like children. 

(A slightly different version of this post appears on my mediation blog.)

1 comment:

  1. Great post Joe. As you rightly discuss -- it's about what we can pragmatically get done as much as what we want to see done (both sides). Two very different things in some cases. As well, it is important (my view) that both parties should be mindful of realtively short term consequences of one sidedness. Today, it only takes 2-4 years for the center to swing left or right. They carry national elections. Fairness in the eye of the voters, matters. The pendulum seems to be swinging back and forth more quickly. It would be helpful to slow that swing and lower rhetoric (both sides). I am hoping the lame duck congress understands.