In Pursuit of the Great White Whale

As explained in my recent post, the best way to raise tax revenues, mainly from the rich, is to cap deductions, avoiding the politically charged issue of raising tax rates. Republicans seem open to this. But President Obama and the Democrats are not; instead, they seem positively obsessed with raising tax rates. It’s no longer just about revenues, or even merely making the rich pay more; it’s a line in the sand for a top tax rate restored to 39.6%, and not a tittle less. They pursue this as some kind of vendetta, as Ahab pursued his great white whale.

Both sides are blameworthy, pushing narrow partisan interests while convinced of rectitude. But the Democrats now outstrip the GOP in zealotry, in their evident sangfroid approaching the fiscal cliff. They even seem to think going over would be good for them. Here’s why: in the first place, they figure they can pin the blame on Republicans. And secondly they see this as a white whale trap (this is the Patty Murray plan; she’s an extreme liberal Senator from Washington). If nothing is done, all the Bush tax cuts will expire on January 1. Republicans wouldn’t have the votes to restore them for the rich, while Democrats would bring forward legislation to re-reduce tax rates for the non-rich, and defy Republicans to oppose that. Gotcha!

And because they thusly think they have the upper hand, Democrats aren’t being serious at all about spending cuts, even reducing what they’d previously offered Republicans in trade for higher taxes. The cuts on offer now are paltry, and mostly smoke-and-mirrors besides. No wonder Republicans balk. Democrats want them to: it’s “Make my day.”

They feel cocky and empowered because they won the election – “decisively.” How often do we hear that? But a 50-48% win is not what I call “decisive.” The electoral vote was more lopsided, but only because a passel of swing states went by the narrowest of margins. And though they gained a few seats, Democrats failed to capture the House of Representatives. The fact is that the country remains closely divided; the election changed nothing, settled nothing.

The conventional wisdom seems to be that going over the cliff briefly is not catastrophic, because then the parties will scramble up a deal. I’m not so complacent.

Firstly, the mere fact of Washington actually letting this happen would be terrible for the economy, eroding confidence in our political system even more than it was already eroded by the partisan games of the last few years. Remember that the fiscal cliff was created intentionally, to force the parties to compromise. And if they can’t compromise when up against such a deadline, why expect a deal without one? Once over the cliff, a kind of virginity will be lost. If the sky does not fall straight away – but only in slow motion – there will be even less impetus for a “grand bargain.” Furthermore, Democrats will now have actually bagged their white whale – tax rates will rise for the rich – thus leaving no bargaining chips for getting anything done on spending. So nothing substantive will get done.

America is the Pequod. The Democrats will party on deck while the vessel takes on water below.

Call me Ishmael.