The main complaint Republicans have about the White House is that it's obsessed with raising taxes. But the strangest thing about the ongoing fiscal cliff talks is how little revenue the White House is demanding.
The Simpson-Bowles plan, if enacted tomorrow, would increase taxes by $2.6 trillion over the next 10 years. The Domenici-Rivlin plan would increase taxes by about $1.6 trillion over the next 10 years.
Simpson-Bowles and Domenici-Rivlin are bipartisan plans. That is, in fact, the whole reason they exist. Both are the products of commissions formed with the single purpose of figuring out what Democrats and Republicans could agree on. In both cases, that middle ground includes a very large tax increase.
President Obama isn't a Republican politician co-chairing a bipartisan deficit-reduction project. He's a Democratic politician who just won a very big election. He's also a Democratic politician faced with the unusual and perhaps lucky prospect of $5.42 trillion in expiring tax cuts. To sharply raise taxes, he needs to do precisely nothing.
Some Republicans, including former Federal Reserve chairman Alan Greenspan and current New York Mayor Michael Bloomberg, have endorsed letting those tax cuts expire. Obama hasn't. Still, you would expect his offer to be much higher than anything contained in the bipartisan compromise proposals. But it isn't.
Obama's initial revenue goal in the talks was $1.6 trillion, about equal to Domenici-Rivlin, and far below Simpson-Bowles. His latest offer to House Speaker John Boehner called for $1.4 trillion. People familiar with the White House's thinking expect them to settle for something around $1.2 trillion.
Part of the reason, certainly, is that the White House is hemmed in by their pledge to resist tax increases on any family making less than $250,000 a year. The expiring tax cuts might raise more than $5 trillion. But only about $1 trillion of that comes from top earners. If the White House is to raise more than $1 trillion in taxes and keep their pledge, they need a policy compromise, not a wholesale expiration.
Still, the White House's relatively paltry revenue demands undermine the argument that the fiscal cliff is, for them, all about extracting the maximum level of revenue. The expiration of the Bush tax cuts presents a once-in-a-generation opportunity to sharply increase the amount of revenue the federal government takes in. For the most part, they're letting it go by. Obama's preferred level of revenue is closer to that of George W. Bush's tax code than to that of Bill Clinton's tax code.
The truth is, the White House wants a deficit deal for many reasons. They believe deficits are a problem. They want to move onto priorities like immigration reform. They're committed to securing more stimulus. They think the fiscal cliff and the debt ceiling could do enormous damage to the economy. They think the American people want compromise. They think that a major deficit-reduction deal will be crucial to Obama's legacy.
In the long-term, it's true that higher taxes are essential to the liberal project. More old people and continuously rising health-care costs mean that sustaining programs such as Medicare and Medicaid and Social Security will, in the coming decades, require much higher taxes than we've seen in recent decades. "In this context," writes Ross Douthat, "the White House’s quest to extract as much tax revenue as possible from the current negotiations looks less like an impediment to the rest of the president’s second term ambitions, and more like the sine qua non of his agenda as a whole."
That may be true as a matter of budget math, but the White House doesn't see the expiration of the Bush tax cuts as a historic opportunity to lock in those revenues. They're just trying to get through the next decade or so. That's why they've settled on a level of revenues that they think politically achievable, but that's woefully below what we'll eventually need. It's also why, in 2011, they were willing to cut a deal that included only $800 billion in tax increases.
If the final tax hike comes in above the $1.2 trillion that insiders increasingly expect, it'll likely be because Republicans miscalculate. The GOP is increasingly committed to a strategy of going over the fiscal cliff — perhaps after giving up on the top Bush tax rates — and then restarting negotiations with the debt ceiling as the new, and much more dangerous, deadline. In that world, Obama would have pocketed somewhere between $800 billion and a trillion dollars in revenue, and that's before he even comes to a deal with the Republicans.
It's ludicrous to think the White House will — or even could — subsequently agree to a deal that's all spending cuts, and it's likely that Republicans will find themselves under enormous pressure to come to an agreement with the White House rather than set the global economy aflame. So it's easy to imagine another deal being struck that includes $800 billion or $1 trillion in further spending cuts alongside almost as much revenue delivered through tax reform.
Ironically, that revenue would come not because the White House is obsessed with raising taxes, but because Republicans are obsessed with not raising taxes, to the point that it's clouded their strategic thinking.