There was a diary on the rec list yesterday suggesting that The Debt Ceiling Battle Was Lost Last December.
The diary concludes:
Yes, now President Obama and Democrats have to accept a bad bargain to raise the debt ceiling. But if they had negotiated better last December, they could have made a better bargain then. They didn't. The Deal was a terrible mistake. And 7 months later, people like Bernstein want to forget how the bad deal in December is leading to the bad deal in July/August on the debt ceiling (and the one after that on the budget.)
It is taxes that Republicans care about. It is the one thing that animates the party. In December, President Obama had the biggest stick he is likely to have until after the 2012 elections. He gave it up without getting back what he needed.
It was terrible bargaining and everyone should have been able to see it. Apparently, not everyone did.
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Did President Obama give away a magic stick last December that could have been used to cudgel the Republicans into submitting to everything Democrats needed with respect to budgets and debt ceiling over the next two years? Answer below the fold.
First, let's take a look at the "bad bargain" President Obama made last December. Wikipedia has a good rundown of the basic provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.
The key terms of the legislation were as follows:
1. Extending the Bush income tax rates for two years, at an estimated cost of $186 billion.
2. Extending the Bush dividends and capital gains rates for two years, at an estimated cost of $53 billion.
3. Estate tax set for two years at a rate of 35 percent with an exclusion amount of $5 million, at an estimated cost of $68 billion.
4. Patching the Alternative Minimum Tax, at an estimated cost of $136 billion.
5. Extending federal unemployment benefits by 13 months at an estimated cost of $56 billion.
6. A one-year, 2% reduction in the FICA payroll tax, at an estimated cost of $111 billion.
7. Extension of the Child Tax Credit refundability threshold, benefiting 10.5 million lower-income families with 18 million children; extension of expanded Earned Income Tax Credit for two years, benefiting 6.5 million working parents with 15 million children; extension of the American opportunity tax credit for two years, benefitting more than 8 million students and their families, at an estimated cost of $40 billion.
8. An extension of the Small Business Jobs and Credit Act, various business tax credits for alternative fuels, and the Railroad Track Maintenance Tax Credit at an estimated cost of $108 Billion.
The total cost of the package was estimated at $858 Billion. Approximately $120 Billion went to tax cuts for the rich that were opposed by Democrats. Approximately $100 Billion went to aid to the poor/working class that was opposed by Republicans. The remaing approximately $630 Billion went toward things that were either agreed upon by both sides or got mixed reviews from both sides.
That may not seem like a thrilling deal for progressives, but because of that deal, millions of people got extended unemployment benefits and millions more were rescued from poverty by the low income tax credits. Analysis by the Center on Budget and Policy Priorities found that Working-Family Tax Relief in Tax-Cut Deal Would Keep 2 Million People Above Poverty Line:
Three major tax benefits for middle- and lower-income working Americans in the tax-cut deal between President Obama and Republican leaders (that go beyond extending the Bush tax cuts) would keep more than 2 million Americans above the poverty line and reduce the severity of poverty for 19 million more, Center analysis finds.
What sweetened the deal even further from a progressive stand poin was the way that the bargain paved the way for additional legislative activity. As was widely recognized last December, the lame duck session of the 111th Congress was The Most Productive Lame Duck Since WWII -- and Maybe Ever
[W]hether the 2010 lame duck session was the most productive since World War II -- when major war funding measures were passed during lame ducks -- or of all the 18 such sessions held since 1935, it's clear that once the Senate passed both the "Don't Ask, Don't Tell" repeal and the ratification of the New START nuclear arms reduction treaty with Russia, the waning days of the 111th Congress amounted to one of the most significant lame duck sessions anyone can recall.
Not only was it highly productive, but its accomplishments on the Senate side -- where the lame duck Democratic majority is more significant than it will soon be but still not able to move forward on major legislation without GOP support -- were packed into little more than a single action-filled week.
Among the session's accomplishments on the Senate side were passage of:
* The tax cut compromise extending the Bush tax cuts, creating new Obama tax cuts and extending unemployment insurance (12/15)
* The repeal of the "Don't Ask, Don't Tell" policy (12/18)
* The food safety bill (12/19)
* The 9/11 First Responders Bill (12/22)
* New START ratification (12/22)
So, the President used the Bush tax cuts for the wealthy to broker a deal that allowed us to extend unemployment benefits for two million desperate families, extend tax credits rescuing millions more families from falling below the poverty line, repeal Don't Ask Don't Tell, pass the food safety bill, pss the 9/11 First Responders Bill and get the new START treaty ratified, all as part of, quite possibly, the most productive lame duck session ever.
And yet, "it was terrible bargaining." What would good bargaining have looked like? Allowing all of the Bush tax cuts to expire with no unemployment extension, no low income tax credit extenison, no Don't Ask, Don't Tell repeal, no START treaty, no food safety bill, no 9/11 first responder bill?
Or is the idea that "good bargaining" would have enabled the President to render the new Republican majority in the House utterly powerless to harm the country for the next two years? If that's the idea, that's not just 11 Dimensional thinking, that's magical thinking.