The Democrats won the presidency, but they don’t have what a parliamentary system would call a “government.” Even if they win both Georgia Senate seats in the runoffs, they’ll have just 50 Senate seats and will need to rely on moderates to supply the deciding votes, with little prospect for ending the filibuster and no margin for error. If Joe Biden is to pass any major legislation, he needs to lure Republicans who have neither an ideological incentive to support any progressive reforms nor an ideological incentive to help him succeed.
There’s just one big lure Biden can offer for their votes: tax cuts for the rich. It’s a price he should be willing to pay.
Let me premise this argument by stipulating that cutting taxes for the rich is an awful policy. My first book, and indeed much of my 25-year career, has been devoted to revealing the cultlike insanity of supply-side economics. The failed Trump tax cuts have proved once again that the belief that low taxes for the wealthy have any detectable positive impact on economic growth at anything like current levels has been conclusively debunked over and over.
Yet this record of unbroken failure has done nothing to slake the Republican Party’s thirst for giving rich people a tax cut. Supply-side economics is a theology, not a form of economics, one that people who stand to gain from it are incentivized to subscribe to. But Republicans’ undying devotion to lightening the tax burden of the privileged is the very reason Democrats can leverage it.
The past two Democratic presidents followed this strategy after losing control of Congress. In 1997, Bill Clinton traded Republicans a capital-gains tax cut in return for creating the Children’s Health Insurance Plan. In 2012, Barack Obama traded lower tax rates on incomes up to $450,000 in return for a tax credit for low-income workers.
It’s notable that both of those deals took place when a Democratic president was facing down a Republican Congress that was absolutely wild with oppositional fervor. The Clinton deal came between Republican congressional attempts to shut down the government and force him to accept their priorities and a crusade to impeach him. The Obama deal came on the heels of a Republican scheme to hold the debt ceiling hostage and threaten a global financial crisis to force Obama to agree to social-spending cuts.
What this shows is there’s no such thing as making congressional Republicans so angry that they won’t cut a deal to reduce taxes for the affluent. There’s nothing they care about more.
Biden has endorsed an ambitious domestic agenda whose legislative elements will stand little chance of enactment during his first term. But he can pick important priorities: perhaps shoring up subsidies for health-insurance plans on the exchange, investments in a green-energy transition, or anti-poverty spending. He can get some of those if he attaches them to another windfall for the wealthy.
When Clinton and Obama struck their bargains, I opposed both, but I have come to change my mind on this for several reasons. The purpose of raising taxes on the rich, collecting more revenue and therefore reducing the deficit, has become much less compelling. Economically, interest rates have stayed at rock-bottom levels, rendering irrelevant the fear held over from the 1980s and 1990s that deficits would cause interest rates to spike. There is a global savings glut that seems to allow deficits well over a trillion dollars without Washington breaking a sweat to find the money.
Politically, the goal of reducing the deficit has been exposed as a Sisyphean folly. Clinton devoted his political capital to a deficit-reduction bill, which passed over fierce Republican objections and succeeded in producing a surplus, only for Republicans to unleash the fiscal spigots once they regained power. Obama had to follow painful fiscal discipline, both by paying for Obamacare and being forced into sequestration, only for Donald Trump to jack the deficit back up. There’s simply no point in one party caring about the deficit when the other party will just use its responsibility against it.
Of course, liberals would rather increase the deficit on priorities we care about than enrich the affluent. But if deprived of that option, trading a dollar of spending for a dollar of tax cuts is a lot better than nothing.
And taxes on the rich can always be raised in the future. Social spending, however, tends to be permanent. (That’s the advantage of having an economic program that benefits the majority of the population, not just the richest one percent.)
Indeed, there is a side benefit for cutting taxes for the rich: It creates more fiscal headroom to pay for future social programs whenever Democrats regain control of government.
This dynamic reflects one of the perverse facets of the modern political economy. Democrats follow a self-imposed requirement to pay for any new social programs by offsetting spending cuts or with new tax revenue. (Republicans don’t care about this rule at all; they just finance all their initiatives with debt, which is also why a deal with Republicans doesn’t need to be paid for.) And while some progressives wish Democrats wouldn’t follow this rule, the fact is they at least try to follow it. Even the most left-wing candidates in the 2020 field, like Bernie Sanders and Elizabeth Warren, sketched out proposals to pay for their spending.
This rule makes it hard to pass new programs because making people pay for them is usually unpopular. The one popular way to finance new spending, though, is to raise taxes on the rich. Democrats have learned to pay for everything they can entirely by doing so.
Now, the limit to this method is that there’s only so far you can tax the rich until you have to raise rates so high that you’re actually putting a damper on growth. But the lower the tax rates on the rich get before you start raising them, the more room you have to go and the more revenue you can generate — and therefore, the more generously you can fund your social agenda.
Even a successful version of a Biden presidency will be an era of compromise and half-measures. Securing those half-measures will require difficult choices about which priorities his administration is willing to part with. Biden’s best source of legislative leverage is that he can give Republicans the thing they cherish most in the world.