Bluff Or Denial

Speaking on the Senate floor, Minority leader Mitch McConnell said that the American people voted in enough Republicans to control Congress.  That means tax rates should not be raised under any conditions.  “The President knows this and he needs to leads us to a compromise”.

Hmmm.

Is this a bluff or simply a denial of reality?

Reality is that the House is controlled by the Democrats and the Senate is lead by the Democrats (without a super majority).  Reality is also that President Obama ran on a platform of shared sacrifice to reduce the deficit.  The President won 320 electoral votes (versus 200 for Romney).  The President arguably can say voters chose his approach over that of the Republicans.

Representative Paul Ryan has also said in an interview that he remains absolutely opposed to any increase in tax rates.  His position has not changed he says.

Republicans have suggested (being reasonable as they are) that tax code reform could increase tax revenues without increasing rates.  While this maybe true, no one has outlined how to make this fair.  Think about where the increased revenues might come from.

  • Mortgage interest deduction
  • State and Local tax deductions
  • Property taxes
  • Charitable deductions
  • Employer provided health care insurance

There are many more deductions, credits, and loopholes but these serve to highlight the point.  Each of these represents a far larger percent of discretionary income for the middle class than those earning more than $250,000.  In addition, the political process would be expected recognize this unfairness and ease the reform.  The net impact will be less increased tax revenue and the need for greater spending reductions.

Of course, Senator McConnell and Representative Ryan know this.  So why are they taking these public positions?

The President is proposing a 10 year debt reduction figure of $4 trillion as his target.  This is effectively about $400 billion each year.

Publicly the President is asking for $1.6 trillion in new tax revenue and would couple that with spending reductions to get his $4 trillion.  Frankly at this point in the debate the President is a little light on the side of spending reductions.  He is bordering on blindness to the systemic deficit problem of Medicare, Medicaid, and Social Security.  He actually projects about $1 trillion in savings from ending the wars in Iraq and Afghanistan as if there will be not some other war to go fight.

So the nicest dress one can put on McConnell and Ryan’s statements is that they are bluffing.  They will bluff until there can be a behind closed doors deal which protects such benefits as capital gains and dividend treatments, inheritance taxes, and a range of special interest loopholes.  They will also bluff until they can be assured the President is serious about changes to entitlements.

But danger and risk lurk everywhere.

The President holds the ace of trump.  Unless an acceptable deal can be struck, do nothing is more acceptable to the President than the GOP.  The Bush tax cuts will expire .  The new Congress can then propose ways to lower taxes (read middle class income tax rates and 2% favorites like capital gains, inheritance, etc.  The political pressure under this scenario will lie on the backs of Republicans.

So what if McConnell and Ryan are in denial?

Well unless there is a revolt within the GOP and Republicans side with a Democratic sponsored compromise, the year end will come and the Bush tax cuts will expire.  Same game.  Hmmm.

So I have one question, why aren’t the GOP proposing savings targets for the entitlements instead of insisting upon no tax increases?  I wonder whether their posturing is not really part of a much larger bluff to get Democrats identified with entitlement cuts.

That’s what’s nice about math.  You don’t have to guess.  It either adds up or it doesn’t.

 

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16 Comments on “Bluff Or Denial”

  1. tryanmax Says:

    It’s called “good negotiating tactics” but I understand how you may be confused. We see so little of it from the GOP. You may call it a bluff if you want; ultimately it is a hard-line position that serves as a starting point to move the opposition toward your position to at least a degree. No one who isn’t a partisan thinks that one side has all the answers, so it’s a little strange to look askance at tough negotiating as though that’s the problem. That is, unless you intend to bawl about it when the Dems cede an inch and crow when the GOP cedes a mile.


    • T, it nice to hear from you again. It has been a while.

      “Good negotiating tactics”… maybe but in this case if no deal is done taxes go up for everyone and the Dems and Obama will never agree to lower them come next year.

      No one starved during Bill Clinton’s years so the higher rate for the top enders is not such a big deal. I would think the GOP would be trying to preserve favorable inheritance taxes (big issue for farmers), capital gains (Romney’s route to 14%), and low dividend rates (every 2%-ers wish)…

      The “no way but the high way” seems a poor strategy.

    • tryanmax Says:

      Well, single-dadhood will keep a body busy.

      “My way or the highway” is all the GOP has. As you correctly point out, the Dems have little to no political incentive for avoiding the fiscal cliff leaving Republicans no strong leverage on this matter. Seriously, what have they got? Sure, they could threaten to kill any Dem legislation in the House for the next 2-4 years, hold up a couple presidential appointments, stage a filibuster or two. But that’ll only play into the tried-and-true meme that the Republicans are obstinate. (A remarkably reversible charge that, even more remarkably, never seems to be reversed.)

      Besides, that’s all down the road. The fiscal cliff is here, right now.

      With the GOP only holding one half of one third of the federal gov’t, and Obama declaring himself a mandate he didn’t exactly receive, the next 2-4 years are going to be all about Republicans bluffing and being called on those bluffs with no need for bluffing from the Dems.

      Now, traditionally, the Republicans have been very, Very, VERY bad bluffers. Could this mark a reversal of that trend? I couldn’t say. But, quite literally, the GOP has nothing to lose except the support of their own base. Three guesses how they intend to keep that support. (Oh, and I just revoked the second two guesses, because I know you don’t need them.)


      • Here’s a tangential thought… the election results tended to support the notion that the GOP is a grouping of quite dissimilar factions… Libertarians, Tea Party types, evangelicals, center rightists, and some who call themselves moderates. So with that make up, how could anyone bluff?

      • tryanmax Says:

        I’m not sure I take your meaning. Are you saying that whatever the bluff is, at least one faction believes it? That’s irrelevant. All that matters is whether the folks at the table are bluffing. And that is yet to be seen. But, hey, at least we’ve dispensed with the notion that the GOP is a small-tent party.

  2. tryanmax Says:

    P.S. Why should the GOP propose entitlement savings targets when the Dems have already (facetiously) done so?


    • I accept your point that the GOP staking out a target for entitlements might be poor tactics… never the less, it could draw the Dems into a position where they say no and quickly anyone can see the math won’t work…

      Entitlement changes will not be easy. Wage roll taxes on those working could go up, co-pays and delayed onset of benefits could impact recipients, benefits could be means tested, and for Medicare/Medicaid, there could be real reform in the health care sector… So it gets back to less government spending means someone else must spend more… unless health care actually cost less…

    • tryanmax Says:

      Okay, that’s a better thought than I initially realized.

      All I can figure on that front is that the Dems have been so successful at making voters scared that Republicans will cut entitlements that the GOP feels all eyes on them in that regard. As such, the best thing they can do is wait for the math to sour with buttoned lips, let the Democrats come to it on their own.

      Otherwise, if the GOP makes a savings proposal and the Dems accept, all the Dems have to do at election time is declare it a Republican idea. Only the right-wing outlets will fact-check it, which will make their checks seem suspect to left-leaning voters.

      It’s political poison either way, and maybe the GOP has finally had it’s fill. If the Republicans refuse to drink, that leaves the Dems with two poison cups to choose from and no one to pass to.

      Is this the beginning of GOP shrewdness? I still won’t hold by breath.


      • It is amazing that anyone can look at the budget numbers and see how much is collected for Medicare and Medicaid and see how much the government expends… Simple math shows you about 50% of the deficit comes from these two… These are programs you are suppose to have paid for while working. Too little collection and demographics (too many collecting) can lead you to few solution possibilities…

      • tryanmax Says:

        In other words, it’s a Ponzi scheme. But you don’t dare say that if you are running for office.

  3. tryanmax Says:

    Final thought, (you tackle so many topics at once) it really doesn’t matter how you slice it, there are virtually no changes to the tax system that could be made, including rate changes, that will not disproportionately affect the middle class. The question is what affects them least. I don’t purport to have the exact answer, but I am bold enough to say that any proposal which suppresses hiring and encourages layoffs while simultaneously putting an effective wage/salary cap on middle class earners is going to hit harder than the elimination of any deductions they may lose while maintaining gainful employment. That’s not to mention what happens to Washington revenues when the tax base shrinks. And neither of us has yet brought up inflation.

    That’s the not-so-nice thing about math: you have to actually do it in order to glean anything from it.


    • T. Agreed… I actually favor elimination of Bush tax cuts for everyone, and I also believe that anyone making more than a million should pay at least 30%… I am not a French Socialist who think 70-80% top rate is a good idea, however.

      The main reason I favor higher top rates is that most all government spending, and certain all entitlements, help the lower 98%. So if you cut those areas, you are taking a bite out of the less wealthy. Increasing taxes, to the Clinton level, will give the appearance of fairness even though there will be large sacrifices lower in the earnings ladder.

    • tryanmax Says:

      We can definitely side on that. While I would prefer the Bush cuts stay in place (b/c, after more than a decade, they aren’t really cuts, they are policy now) if they must go, then they must go across the board. My only concern is the constant Democrat denial that the money top earners “keep” is actually money that they reinvest.

      Oh, sure, there are plenty of instances where that “reinvestment” takes the form of exorbitant salaries and other stupid practices. But taxing that money is only an incentive to further inflate those top salaries (which are more often than not determined by the very people taking them home) to avoid the pain of the next tax hike.

      I’m not sure if there is a policy answer to human greed in that regard. If not, then best to let it fall under its own weight–and it inevitably will. In the meantime, the focus should be on broadening the tax base, something which cannot be achieved by simply installing 100,000 new teachers to equip people for jobs that show little promise of materializing. If the rest of the world weren’t in such a shambles, the next threat would be people leaving to work elsewhere. Better hope Europe doesn’t get its act together any time soon.


      • In my world the answer lies in universal health care (like in Germany and France and 18 other modern countries)… with UHC, there is no need for Medicare or Medicaid… paying for UHC would remain a problem… but a national sales tax could fix that… UHC systems all have some brakes on how much doctors, hospitals, and drug companies can make. Getting from our current system to what I think is better is not easy to see.

        The good news is that UHC would provide plenty of topics for future posts…

      • tryanmax Says:

        You and I will never live in the same world. You’ve basically given up on a solution and have instead decided to favor a fiasco that you don’t currently have to deal with. The grass is always greener, my friend.

    • tryanmax Says:

      FYI, new info out in the last couple of days suggests that Obama has already changed his plan to raise taxes only on those making over $500,000 or possibly even only those making more than $1 million. And that new rate is expected to only be about 5% higher than current while leaving in all the deductions that only rich people have access to. So much for hoping.


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