Big Little Deal

It is hard to get excited over a deal being struck to avert a crisis that was entirely artificial. The Senate passed a ‘fiscal-cliff’ averting piece of legislation by a surprisingly wide 89 – 8 margin and so has managed to pass the buck to the House where, as yet, not vote has been scheduled.

It is vital we all keep a hard headed perspective on what’s going on in Washington. This deal is not at all about a budget crisis, nor is it about the amount of debt we have – those fights are still in the future. This deal was simply another battle on the long war to defend America’s already threadbare welfare state.

The US has by far the stingiest safety net of all industrialized nations. It also has increasingly lopsided growth with an ever increasing share of our annual income going to a very few people. Combine these two facts and we get the context in which every policy proposal must be considered.

The Republicans have for decades been anxious to gut or dismantle the safety net. Their position is based on longstanding conservative principles. The idea is that people should look after themselves and that the state has no role to play in protecting anyone from misfortune, ill health, or any other form of adversity. It is an profoundly anti-social perspective made moral by the simple device of denying the existence of anything social to be ignored or opposed.  There can be no anti-social if there is no social to begin with. This position was famously summed up by Margaret Thatcher’s extraordinary  claim that there is no such thing as society, just a bunch of individuals. By the same token there is no such thing as an army, just a bunch of soldiers. Nor is there such a thing as a business firm, just a bunch of workers. Nor a team, just a bunch of players. These claims are all plainly foolish, yet the right wing’s similar claim about society – equally inane – stands at the core of current Republican orthodoxy. Indeed, given the steady rightward drift in contemporary Republicanism it is reasonable to argue that this claim is the only thing at the core of right wing orthodoxy. Nothing else much matters. Certainly not old fashioned fiscal responsibility.

Given this core belief the Republicans have two courses of action open to them if they are to achieve their goal of eliminating the safety net.

They can legislate it out of existence, or they can cut off the funding necessary to keep it thriving. They can kill it, or they can starve it.

Given that Americans have grown increasingly fond of the government programs that help them – Social Security and Medicare are consistently given massive amounts of voter approval – the first course is neither open, nor politically attractive. It would take an huge act of political courage for the GOP to campaign openly on a platform of entitlement elimination. Even Reagan with his seething hatred of social programs and enormous popularity had the sense to avoid taking the open route to their elimination.

So, for decades, the Republicans have taken the second course. They have set out to starve government of the money needed to keep the safety net thriving. And they have come near to succeeding.

As we all know the most recent triumphs in this covert battle were the Bush tax cuts. Those cuts were passed through Congress by using legislative trickery which is why they were subject to a ten year time elapse. Not only did those tax cuts plunge the federal government into permanent deficits, but they accomplished the long term strategic goal of ‘starving the beast’. So every subsequent budget discussion has taken place within a context created by George Bush.

His greatest legacy to his party was that the terms of debate were altered by his fiscal recklessness. Even ardent progressive analysts and supporters have caved in to the notion that we cannot afford our entitlement programs. They join, perhaps reluctantly, the discussion about spending cuts as if that were the only option. They act as if we are revenue constrained for ever, not by choice, but by some mysterious background law that we cannot transgress. It is as if the US economy has been hobbled and can no longer generate sufficient wealth to pay for even a meager safety net.

This is wrong.

It is horribly wrong.

It is cruelly wrong.

Our economy can well afford its social programs. What it cannot afford is its awful health care system – neither public nor private. About a decade from now we will be faced with true crisis in health care spending. But we have a full decade to engage in a debate about what to do. Eventually we will be forced into a single payer government run system because of its massive efficiency when compared with any hodge-podge private sector alternative. That argument, though, is yet to be had.

What we do not need is to make hasty ill thought through changes to social spending because we have been forced into a false debate.

Which brings me to the ‘deal’.

We managed to miss such changes.

This stands as a big win for most Americans. The social programs are untouched. For now. But that victory is diminished by the lack of resolution on other issues.

For instance, with respect to the undoing of the damage wrought by George Bush, the score is a lot more even. Obama caved in on his campaign promise to push up tax rates on incomes over $250,000. He edged his way up to $450,000. So he surrendered some of the revenue needed to be recaptured. Instead of getting a revenue boost of $800 billion, he is getting $620 billion. In the context of the US economy the difference is insubstantial. But the difference is politically significant: he gave ground where he need not.

From his perspective, he bartered this cash away to buy some continued relief for the poor and unemployed. Any reasonable nation would have extended unemployment assistance anyway. In the US getting anything to help the unemployed is a hard long fight. Worse: the temporary reduction in payroll taxes has been given up, meaning that workers will face an immediate tax increase of 2% no matter what the politicians say or do about the income tax.

The deal tinkers with estate taxes – the rate goes up on larger estates, but the exemption from tax is set at $5 million. And the rate of tax on capital gains and dividends is raised to 20% from 15% for those people with incomes over $400,000. Both these will have a very modest impact on inequality, but fall way short of a true liberal victory.

Indeed the details of the deal are sparse given the enormity of the brouhaha associated with getting it done.

The so-called sequester spending cuts are not eliminated but postponed for two months, and the debt ceiling is not addressed at all.

This last two are the true telltale from this deal.

It was about window dressing and avoiding a tax increase. It had nothing to do with the substantive issues. The Republicans can get behind the deal because it looks as if it saves a tax hike – one that, we must remember, they engineered a decade ago. Yes, they have voted to raise income tax rates on the wealthy. This is, I suppose, a big break from their recent past, but they gave no more ground. We will not be spared a constant and bitter fight over the budget and debt levels. The right has managed to keep its long term goal alive.

The true oddity about all this is that we just had an election in which the choices were clear. The result was a resounding vote to sustain the social programs and to raise taxes on the wealthy.  Inside Washington that result has been ignored both by the winners and the losers. The negotiation carried on as if the bulwark of the people’s will mattered very little. Exit polls showed that voters do not care about the debt until they are scared by media and political talk. What voters care about most is jobs, wages, and getting the economy humming.

Despite all the chatter in Washington this morning, this deal does little in that regard. All it does, which is big, is to avoid a tax increase that could have crippled the economy for a quarter or two. Little and big. Big and little.

It is a big little deal.