The tax deal completes the first piece of a multistage showdown between President Obama and congressional Republicans over the federal budget and the economic recovery. The Obama administration made concessions, but the concessions were small, and it is gloating that it won a larger strategic victory by breaking Republican anti-tax absolutism. Republicans, including anti-tax absolutists themselves, mostly believe they got through the first and most unfavorable stage as intact as could be. (Grover Norquist: “We’re in this impossible, upside-down position, where if you do nothing, taxes go up. That’s what we got saved from. That goes away now.”)
In gaming out the next, and much more dangerous, stages, the crucial question is, which side is right? I believe Republicans are. The big reveal from the negotiations is that, as the clock ticked down, the administration feared the consequences of a stalemate and feared the power of nihilistic House Republicans. This reporting from Politico confirms the same things I heard from the administration:
Republicans were no more likely to compromise after the deadline than before it, the White House concluded. And there was a very real fear that a resolution wouldn’t come for weeks, perhaps not before the country hit the debt limit in late February — a nightmare scenario that the president believed would destroy not only his leverage but also the still-fragile economy.
The chaos on New Year’s Day in the House validated the president’s strategy to find a solution now, White House aides said.
The basic text for understanding this situation, as with so many situations, is The Big Lebowski. A woman has allegedly been taken hostage by nihilists (nihilists conveniently being a common point of comparison with the House Republican caucus.) Jeffrey Lebowski, the Jeff Bridges character, fears they will kill her. Walter, the John Goodman character, has already figured out that there is no hostage. Lebowski here is Obama, and Walter is Harry Reid:
Walter is right. There is no hostage. The Republican Party was actually terrified of the no-deal scenario. Policy-wise, the alternative to a small tax hike that they agreed to was a huge tax hike that they didn’t agree to. The politics were even worse: Republicans would be blamed for higher taxes on the middle class in order to defend the rich, deepening an already severe image problem.
Obama grasped the basic leverage over the Republicans. But he also fears the sheer nihilism of the crazy House wing, members so fanatical they cannot even seem to grasp their own political self-interest and vote coherently. Walter explains, “Without a hostage there is no ransom. That’s what ransom is. Those are the fucking rules!” Whereas Jeffrey hopes to avoid confrontation by handing the nihilists a small payment:
Obama ultimately traded away about a quarter of the revenue he would have gotten in the no-deal scenario in return for extending unemployment benefits and some temporary tax extensions. A bad deal, but not an awful one — like Jeffrey’s offer of giving the nihilists the four dollars in his wallet. The nihilists curse at Walter (“fuck you!”) in basically the same way John Boehner curses at Reid (“go fuck yourself.”). They angrily rage at the unfairness of the circumstances — nihilists: “We thought we would get a million dollars! It’s not fair!” — in much the same way the most deranged House Republicans thrashed about trying to set the tax threshold at a million dollars a year, making impossible demands, and otherwise refusing to accept the basics of the negotiating dynamic. (Luke Russert quoted, via Twitter, a Republican member on yesterday's meeting: "Felt like I was living in another world, guys asking for stuff there's no way Ds wld give on.") Say what you will about the tenets of supply-side economics, dude — at least it’s an ethos.
The problem here is not the $200 billion in revenue Obama traded away. It’s the fact that he allowed Republicans to use the nihilism of their own members as a bargaining chip. Unlike the expiration of the Bush tax cuts, the debt ceiling is a real hostage. Failing to lift it would have real and immediate effects. And Obama’s political club against Republicans is far weaker — rather than demanding they do the popular thing of extending middle class tax cuts, he’ll be demanding that they take an unpopular vote to lift the debt ceiling.
Obama obviously faces a really tricky dynamic here, and escaping it — without either triggering a financial crisis or acceding to terrible policy — will be hard. But the key to the whole negotiation is that he has to make the nihilism of a large bloc of Republicans the GOP’s problem, not his. The tax fight was the ideal ground to flip that political dynamic. The economic consequences of a stalemate were minor — the economy could have withstood a few weeks of stalemate. But a stalemate could also have placed unbearable political pressure on the Republican Party, forcing its political elites and donor class to either break with its nihilist wing or bring it to heel in one form or another.
The deal Obama got isn’t terrible. It’s vastly superior to the one he offered Boehner in the summer of 2011. If there was only going to be one bargaining moment, then it wouldn’t matter that at the last moment he decided to avert a fight by giving them some money. The problem is that Republicans have concluded he’ll do it again.