I’ve been on vacation for the past week and have been following the fiscal negotiations with less attention than I normally would. But perhaps that distance gives me a different perspective on the deal.
Most of the observations that I was reading about the deal were highly concerned with tactical considerations: Who had moved most from their previous offers? What precedents were being established for future negotiations?
As news about the negotiations evolved on a daily (or hourly) basis, the attitude of liberals and conservatives in my Twitter feed seemed to change along with it. Liberals seemed considerably happier about the deal on Tuesday night, for example – after the House of Representatives nearly scuttled the deal and then passed it with mostly Democratic votes – than they were early Tuesday morning, after the deal had passed through the Senate with an overwhelming bipartisan majority. But there had been no change to the policy terms of the deal.
I do not mean to suggest that these tactical considerations are of no importance. It could matter that the House of Representatives violated the Hastert rule — the idea that that a bill should receive a majority of votes from members of the majority party in the House – in passing the bill. It could matter that President Obama, at an earlier point in the negotiation, capitulated on his demand that the federal debt ceiling be raised as part of a deal, setting up another confrontation in a few months.
But I would argue that the attention paid to these tactical considerations is a bit disproportionate. They seem to make it easy to declare “winners” and “losers” at every turn in the negotiations – whereas evaluating the deal in terms of the actual policy impact is much trickier.
Why is this so? Because each side has a variety of plausible strategic imperatives when it comes to fiscal policy – and they don’t necessarily yield the same policy preferences.
Take the deal from the Democratic or liberal perspective, for example. What were Democrats’ major strategic goals? For some liberals, the goal might be redistribution: to adopt a series of policies that result in a net transfer of wealth from high-income earners to middle- or low-income earners.
Other Democrats (and Republicans) might view the deal from the standpoint of taxes vs. spending: what is the ratio of tax increases to spending cuts?
Finally, there is the paradigm of expansionary or contractionary fiscal policy. Since the economic recovery is still tepid, many liberals would prefer that the government continue to stimulate the economy in the near-term at the expense of increasing the debt in the long term. (This consideration may have a political component as well, since a better economy will tend to improve President Obama’s popularity and perhaps increase his ability to achieve future fiscal and nonfiscal policy goals in the months and years ahead.)
Take one component of the deal: that the cuts to the payroll tax, which had been in place for the past several years were not extended and will now expire. If increasing tax revenues is the major Democratic goal, the expiration of the payroll tax cut helped to achieve that. But it also represented contractionary fiscal policy. And the impact will mostly be realized upon the middle class and the working poor, which pay a higher percentage of their income in payroll taxes.
Most Democrats, I assume, would have preferred that the payroll tax cut had been extended: doing so would have achieved two Democratic goals (expansionary policy and redistribution), outweighing the one that it contradicted (increasing tax revenues).
But when the overall deal is considered – not just the payroll tax, but all the other components, like the extension of unemployment benefits, or the increase in income and capital gains taxes for high-income earners – it becomes much trickier to evaluate because of the different criteria that might be reasonably be applied to evaluate success or failure.
My objective here is not to advocate for any one set of metrics, or to “score” the deal that was struck on Tuesday – so much as to suggest that liberals and conservatives might do well to spend more time considering what their strategic objectives really are. Just as is the case during election campaign, an obsessive focus on the latest developments in the news cycle can cause one to lose sight of the bigger picture.