Holding all the cards...and they still folded

January 3, 2013

Lance Selfa explains how the Democrats gave up ground in fiscal cliff negotiations.

DURING HIS re-election campaign last year, Barack Obama didn't promise much.

But he did repeat one promise again and again, wherever he appeared--that if he won a second term, his administration would make sure the Bush-era tax cuts for households making more than $250,000 ended.

"Pass a bill extending the tax cuts for the middle class, I will sign it tomorrow," Obama said at a White House event last July. "I just believe that anybody making over $250,000 should go back to the income tax rates we were paying under Bill Clinton." Obama continuously hammered Mitt Romney for wanting give "millionaires and billionaires" tax cuts that "they didn't ask for" and "don't need."

When the bumbling Romney said he considered people making between $200,000 and $250,000 a year to be "middle income," Democratic Party loyalists, starting with Vice President Joe Biden, piled on. "He thinks the middle class is $200,000 to $250,000. Whoa! Whoa!" Biden whooped to a cheering crowd at a campaign rally in September. "Don't you all wish you were in that middle class? Whoa!"

President Obama with Vice President Biden
President Obama with Vice President Biden

But all of that went down the memory hole this past week when the White House negotiated a tax and budget agreement to forestall the so-called "fiscal cliff" of tax increases and automatic spending cuts set to kick in on January 1.

After weeks of partisan grandstanding and on-again, off-again negotiations, the Senate approved the deal on New Year's Eve, and the House passed it late on New Year's Day. Democrats provided the margin of victory--only 19 members of Congress from the "party of working people" cast a "no" vote.

It was none other than Joe Biden who led negotiations with Senate Republicans and then "whipped" House Democrats into line to support the agreement, which preserves the Bush tax cuts up to $400,000 for individuals and $450,000 for households--and protects most of the other Bush-era tax breaks for the super-rich on income from capital gains and on wealth passed onto heirs.

Perhaps Romney should ask Biden for an apology.

But if anyone deserves an apology, it's the millions of people who voted for Barack Obama a mere two months ago in the belief that he meant it when he promised to look out for the "middle class," defend Social Security and Medicare, and finally require the rich to pay slightly higher taxes.

WAY BACK in mid-November, a re-elected Obama confidently posed as the "fighter for the middle class" who would carry out the mandate of voters to raise taxes on the rich. He had public opinion on his side--multiple polls show that about two-thirds of Americans want to see increased taxes on the wealthy.

When fiscal cliff negotiations began in November, Obama seemed like he would stick to his guns. He proposed $1.6 trillion in increased tax revenues over 10 years--from ending the Bush tax cuts on the richest 2 percent of households and closing loopholes that favor the rich and corporations.

Senate Minority Leader Mitch McConnell reportedly laughed at Obama's position, saying that it "wasn't serious." He was pilloried for his comment in the liberal media. But apparently, McConnell was on to something--because the Biden-negotiated deal that passed Congress will raise only about $600 billion from increased taxes over 10 years.

Not only did the White House give away some $1 trillion in revenues that would have come primarily from the rich over the next decade, but it supported a tax increase that will hit working people the hardest. More than half of increased tax revenues to the federal government in 2013 will come from the expiration of the two-year-old cut in payroll taxes that are paid by every working person and go toward Social Security and Medicare.

The payroll tax increase will hit some 163 million people. And hit most of them hard--a worker making $50,000 a year will pay around $1,000 more in federal taxes than they did last year. By contrast, rolling back the Bush-era tax rates for household income above $450,000 will affect only 1 million of the richest people in the country.

This shouldn't be a surprise--the White House and the Democrats never pretended to be concerned about payroll taxes going up. In the end, the administration got a one-year extension of supplemental unemployment benefits at a cost of about $30 billion--while raising taxes on workers to the tune of about $120 billion.

Obama and Biden also negotiated a five-year extension of tax credits for earned income, child care and education that primarily benefit working people. But as liberal economist Robert Reich pointed out, this was another unjustified trade-off: The poor got a five-year reprieve on these credits expiring, while rich households got a permanent tax cut on all income below $450,000.

The White House also compromised on other taxes paid largely by the super-rich--there will be modest increases in taxes on income from capital gains and the estate tax, though the threshold for paying the tax on wealth passed on to heirs will stay at $5 million, ensuring that fewer people will pay anything.

And then there's the bonanza for Corporate America that almost no one is talking about--a series of obscure business tax breaks and credits, known as "tax extenders," worth around $205 billion. As Matt Stoller wrote at Naked Capitalism, the beneficiaries include the likes of Goldman Sachs, Disney and NASCAR:

Surely, a modest hike in income taxes for people who make more than $400,000 in income and who are stupid enough not to take that money in capital gains would be worth trading off for the few hundred billion dollars in corporate pork. This is what the fiscal cliff is about--who gets the money.

IN SOME ways, the worst aspects of the fiscal cliff deal aren't about taxes, but will come next in Washington.

Obama initially insisted that an agreement on taxes should include authority to raise the debt ceiling and postponement of the automatic cuts due to take effect on January 1. But the deal puts these questions off for only two months, setting up another battle between the White House and House Republicans for early 2013.

The last time Washington went through a debate on the debt ceiling, in the summer of 2011, Obama agreed to more than $1 trillion in spending cuts over 10 years as the price for winning the House Republicans' support for lifting the federal debt ceiling.

Conservatives who are now carping that the fiscal cliff deal didn't include any serious spending cuts will try to extort them in the new year. Obama has pledged that he won't negotiate over the federal debt ceiling again--but this doesn't mean much coming from the man who pledged he would hold firm on raising taxes for those making more than $250,000.

What's more, Obama and the Democrats unnecessarily tied negotiations on the fiscal cliff to long-term "reforms"--translation: cutbacks--in the Social Security and Medicare programs.

During the 2011 debt ceiling negotiations, Obama is on the record as having offered Boehner an increase in the Medicare eligibility age, reductions in cost-of-living adjustments for Social Security benefits and slashed spending on Medicaid.

Proposals about "entitlements" disappeared from negotiations as the January 1 deadline got closer, but you can count on Washington getting around to pushing these cuts in the months to come--because both major parties favor them.

At a time when President Obama and the Democrats held maximum political leverage and had public support on their side, they tossed both away in favor of a deal to end a phony "crisis" manufactured by Congress and the White House.

As a result, the Republicans, who suffered what everyone in Washington recognized as a humiliating defeat last November, emerged from the fiscal cliff negotiations with what would have been, as the New York Times put it, their "fiscal fantasy" a few years ago.

INCREDIBLY, SOME mainstream liberal supporters of the Democrats who warned the White House against making concessions to Republicans fell in line once the deal was done.

On New Year's Eve, as the Senate was voting, AFL-CIO President Richard Trumka tweeted that the agreement was "not a good fiscal cliff deal if it gives more tax cuts to 2 percent." By the next day, as the House neared a vote on the legislation, Trumka had a different statement celebrating aspects of the agreement, while blaming "Republican hostage-taking" for its flaws.

Still, disappointment in the Democrats was so great that even some of the administration's ardent liberal defenders denounced the deal and declared that Obama had "caved in again," despite beginning the fiscal cliff negotiations from a position of strength.

But the problem is not Obama nor his administration and advisers alone.

Virtually all the national officeholders of the Democratic Party lined up behind the fiscal cliff deal and defended it. Only three Democratic senators and 16 House members voted against it. Liberal stalwarts like Sens. Sherrod Brown and Bernie Sanders, an independent who caucuses with the Democrats, voted in favor. In the House, Republican Speaker John Boehner relied on a majority of Democrats to get the bill passed after Minority Leader Nancy Pelosi rounded up the votes for it.

So even if a few elected liberals grumbled about the deal, they didn't do anything about it, as usual.

Furthermore, anyone who expected that Obama would "stand for the middle class" hasn't been paying attention over the last four years. As Socialist Worker has consistently argued, Obama and the Democrats are as committed as any Republican to Corporate America's long-term goals of "deficit reduction" and "entitlement reform"--the Washington euphemism for cutting Social Security, Medicare and Medicaid.

Opinion polls show that Americans are even more opposed to meddling with Medicare and Social Security than they are supportive of raising taxes on the rich. If unions, advocates for the elderly and health care activists want to draw a line against the Washington establishment's threats, they would have millions standing behind them.

But taking such a stand will require recognizing that the austerity drive in Washington is being carried out by both parties--and that working people have to confront the Democratic White House every bit as much as the Republican Congress.

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