For several months now, leaders of both parties have been attempting to outmaneuver each other so that come November they’ll be positioned as strongly as possible to prevail in the coming fight over the expiring Bush tax cuts and automatic across-the-board spending cuts.
Complicating the parties’ strategy-making is the obvious X-Factor of the election. A Democratic sweep, a GOP sweep, and everything in between each portend different legislative outcomes, and so each party needs to devise multiple contingency plans. But a new, enormous unknown is making the difficult planning even trickier. For the idea that Congress will avoid the so-called fiscal cliff and replace it with some other, smaller, more considered deficit reduction package was premised on the notion that the economy would grow steadily — if not at a rapid clip — the entire year.
Fast forward to June, that no longer seems like a safe assumption. And given the nature of the fight, a weak economy will help Republicans more than Democrats to secure key policy objectives, no matter who wins in November.
“One thing we can do now is to adopt the position the president had in 2010 when he agreed we ought to extend current rates for everyone for two years because the economy was slow at that time,” Senate Minority Leader Mitch McConnell said on Fox News Thursday afternoon. “Right now the economy is slower than it was in December of 2010 so it seems this is a place we ought to be. We know that this uncertainty, this portion of the uncertainties coming at us at the end of the year could be solved and everybody would know their taxes aren’t going up January first.”
For Republicans, the big goal is straightforward no matter how the economy fares: extend all the Bush tax cuts for as long as possible, and replace the automatic cuts — particularly the automatic cuts to defense programs — with cuts to safety net programs, federal employee pay, and other liberal priorities. The GOP-controlled House has passed legislation to accomplish the latter, and next month will vote to extend all the Bush tax cuts for one year — supposedly to buy the next Congress running room to overhaul the entire tax code.
That’d normally be a tough political sell, particularly given that Democrats are proffering a more popular alternative in which the Bush tax cuts benefiting only million-dollar a year earners are allowed to expire. But the GOP position takes on a kind of logic if you assume an extremely fragile economy in that it staves off most of the austerity headed our way next year.
To show some level of balance on the spending side, even GOP leaders are willing to allow that the upfront cuts written into current law should be defrayed over 10 years, to avoid harmful economic tightening at the beginning of 2013.
“I think we’ve all made a commitment to abide by the ultimate commitment of the Budget Control Act, which was to reduce spending over the 10 year period by $1.2 trillion,” Sen. Jon Kyl (R-AZ) said Tuesday in response to a question from TPM. “There are ways to do that that will not result in job losses or negative consequences to the economy. There are other ways you can do it that definitely would. So you have to be smart about it. And this automatic sequester of course will result in job losses — they talk about a million jobs being lost as a result of that. So what we’re saying is — I’ll just give you an example: The President had a pay freeze on a certain portion of federal employees. If we extend that…through the middle of 2014, and you combine that with one of the recommendations of Simpson-Bowles, you’ve right there paid for the $109 billion in reductions that are supposed to occur next year.”
This isn’t a balanced approach. For the GOP, taxing wealthy people to rein in deficits is still verboten. But it would steer the country away from the harsh budget consolidation that will occur if Congress does nothing.
In a strong economy, that wouldn’t be such a crucial consideration. In this economy, if it persists for the next six months, Democrats will have a more difficult time balancing the immediate needs of the economy with their broader policy goals, because their approach would actually tighten the deficit more next year.
You see this reflected to some extent in Democrats’ openness to pushing the New Year’s deadline back by a few months — to buy Congress enough time to craft a considered plan to avoid the fiscal cliff. Fixing the damage retroactively, they understand, would mean absorbing unnecessary economic trauma.
Republicans are delighted to unfairly portray this recognition as evidence that Democrats are divided over the fate of the Bush tax cuts. But that doesn’t mean Democrats have an easy position to argue.
At her weekly press availability Thursday, House Minority Leader Nancy Pelosi gave it her best shot.
“I think that we should always be at table to protect the economic security of our country,” she told reporters. “But I still think that one of the biggest contributors to the deficit in our country is tax cuts, especially at the high-end, where they did not create jobs. … The President said that in his campaign two years ago because of the depth of the recession that we were in, the President [said] that they would be continued, but they have to come to an end.”
Brian Beutler is TPM's senior congressional reporter. Since 2009, he's led coverage of health care reform, Wall Street reform, taxes, the GOP budget, the government shutdown fight, and the debt limit fight. He can be reached at firstname.lastname@example.org.