What's plan B? Support for passing the deal: NYT, CBPP and Dean Baker

[ProSense]

LOOKING FOR PLAN B....

The Center on Budget and Policy Priorities' Bob Greenstein, who has as much liberal credibility on budget and tax issues as anyone, doesn't seem to like the "disturbing negative" provisions of the tax policy deal struck by the White House and congressional Republicans. But he wants to see it pass anyway.

"Congress should approve this package -- its rejection will likely lead to a more problematic package that does less for middle- and low-income workers and less for the economy," Greenstein said yesterday. He added that the agreement includes "surprisingly strong protections for low- and middle-income working families."

Dean Baker, another very credible, highly respected liberal economist, reached a similar conclusion. Prominent lefty wonks like Lawrence Mishel and John Podesta offered the same assessments yesterday.

The New York Times editorial page said Democrats are "in revolt," but they should "vote for this deal" anyway.

Without this bargain, income taxes on the middle class would rise. Unemployment insurance for millions of Americans would expire. And many other important tax breaks for low- and middle-income workers -- including a 2 percent payroll tax cut and college tuition credits -- would not be possible.

If angry Democrats blow up the deal, they will be left vainly groping for something better in a new Congress where they will have far less influence than they have now. The middle class and the unemployed would be seriously hurt.

But let's say they're all wrong. Let's assume, for the sake of conversation, that the liberal economists don't fully appreciate the larger principles at stake here; their stimulus projections are overly optimistic; and their entire perspective is skewed by weakness, a poor understanding of political tactics, and a Neville Chamberlain-like worldview.

Indeed, let's also say, just for the sake of conversation, that the liberal policy experts lose the argument and Congress rejects the agreement. Dems decide it's a bridge too far, so they scuttle the deal and take their chances.

What's Plan B?

I don't mean this to sound snarky and this isn't a rhetorical question; I'm genuinely interested in understanding the back-up strategy. When I posed this question yesterday to some Capitol Hill aides I know, they said they'd recommit to fighting even harder for the original Obama tax plan -- permanent breaks for those under $250k, Clinton-era top rates for those above $250k. If/when this week's compromise goes down, Republicans, they said, would likely cave and accept the Democratic approach. They'd be out of options -- it'd be a choice between the Dem plan and higher taxes for everyone. Dems would regain the leverage they lost before the midterms.

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[ProSense]

1. No comment? n/t

[flpoljunkie]

2. Would recommend folks read what Dean Baker has to say

In Defense of Giving Money to Rich People

The short-run alternative is increased demand from the government -- yes large deficits. In spite of the Bowles-Simpson clown show, for the foreseeable future the deficit is our friend. We need to get money into the economy to sustain demand and employment.

For this reason, extending the tax cuts to the richest 2 percent for another 2 years is not especially harmful. It will hand money to people who will spend at least some it, thereby creating demand and generating jobs.

Of course we would be much better off if the $50 billion going to the rich each year instead went to other purposes, such as preventing cutbacks by state and local governments or rebuilding infrastructure, but if the question is whether the economy will do better with the tax cuts or a smaller deficit in 2011 and 2012, the answer is that we will unambiguously do better with the tax cuts to the rich.

There are huge dangers here but they are political not economic. The deficit hawks will whine about this will add to the national debt and create a huge interest burden.

more...

http://tpmcafe.talkingpointsmemo.com/2010/12/07/in_defense_of_giving_money_to_rich_people/

[ieoeja]

5. Ignores disincentive to invest.

Knowing that taxes are scheduled to increase in two years, I would want to wring as much profit out of my company as I could right now while taxes are lower. When taxes are higher, sure, I want that money to work for me, not the government. So I'll let the company keep reinvesting it. But right now while taxes are at their lowest point is the time I want to cash out.

[ieoeja]

3. Given that the House already passed the original plan, aren't they looking for a Plan C.

Plan A is the middle class tax cut already passed by the House.

Plan B is the compromise.


I don't think there really is a plan C. The tax holiday ends.

Going forward, all we have is politics, not government. Democrats tried to enact a tax cut for the middle class, but Republicans stopped them. While Republicans can try to fault Democrats for voting against plan B. But at the moment prominent Republicans are also speaking out against the compromise. So Republicans may not be able to (accurately) blame Democrats for anything.

[karynnj]

4. A game of chicken, where those with the least resources bear the burden if we lose

"If/when this week's compromise goes down, Republicans, they said, would likely cave and accept the Democratic approach. They'd be out of options -- it'd be a choice between the Dem plan and higher taxes for everyone. Dems would regain the leverage they lost before the midterms."

Consider one thing. If nothing is resolved and the tax cuts expire at the end of year and there is no unemployment insurance extension, who is hurt?

- People needing the extension will have no money - this is real hurt
- Take home will decrease as soon as the new rates are put into payroll systems - a surprise tax increase that will hurt more at the lower level than at higher levels.

Consider that for the Republicans, they have more power in the New Congress. It is just as likely that they can "hold their breath" longer than us. There will be less time pressure on them to pass the rollback than us - if it is retroactive to 1/1, will hardly be hurt at all.