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The Fiscal Cliff Is Just an Early Battle in a War Dems Will Win

Setting aside the obvious consequences for the economy, what exactly is at stake in the fiscal cliff negotiations?

To hear conservatives tell it, liberals aren’t just preoccupied with fairness and balance, their recent buzzwords of choice. They’re engaged in a brass tacks fight over the size of the welfare state, which can’t persist unless they scare up a lot more cash. And if, as conservative writers like Ross Douthat and Yuval Levin have observed, liberals can’t substantially raise taxes now -- when they have as liberal a president as they’re going to get in a while, and when taxes are slated to rise by trillions of dollars automatically -- it’s highly unlikely they’ll ever be able to fund the social benefits they’ve created. 

“[T]he White House’s quest to extract as much tax revenue as possible from the current negotiations looks … like the sine qua non of [its] agenda as a whole,” Douthat wrote. “[W]ithout more tax revenue nothing else about the Obama program makes much sense.” Levin argued that more revenue now is the only hope liberals have “to save the welfare state from itself.” 

Seen in this light, the conservative goal of minimizing the revenue these negotiations generate makes its own Machiavellian sense. Without sufficient revenue, the welfare state becomes unsustainable—like a wild beast starving, you might say. Democrats will have no choice but to accept Republican efforts to reform it, probably along the lines Paul Ryan proposes. And the less Obama is able to gin up in the way of revenue this time around, the sooner that reformation will happen. 

On its face, the logic is pretty compelling. If you just look at the lengths to which Obama went to offset the costs of his healthcare plan, it suggests even Democrats realize the days of the blank-check entitlement program are probably over. And yet I still think the Douthat-Levin thesis is off-base. 

For one thing, it doesn’t exactly comport with the behavior of the White House. Obama’s opening bid in the current talks was $1.6 trillion in revenue, or about $800 billion more than what he figured he could get if there were no deal, and about one-third of the revenue he would raise if he simply let all the tax cuts expire on January 1. Since then, Obama has come down pretty quickly—first to $1.4 trillion, then to $1.2 trillion. Now you might argue, as I have, that this is partly a function of Obama being an exquisitely bad negotiator. But it’s not just Obama. Had Republicans signed on, the president would almost certainly have been able to sell the $1.2 trillion package to his allies on the left, which would seem to cast doubt on the revenue imperative Douthat and Levin posit. If it actually existed, then surely these allies would be hypersensitive to it.

The reason they’re not is because the fiscal long-game mostly favors liberals. To see this, let’s fast forward a decade or two and imagine a similar negotiation. I suspect that, if anything, Medicare and Social Security will be even more popular than they are today given the aging of the population, making them even harder to cut. It’s possible that raising taxes on the affluent will be less popular—some 60 percent supported Obama’s desire to do that in last month’s exit polls—but I doubt it. Historically, Americans have been sympathetic to the idea. And while it’s true that, as conservatives point out, you can’t fund the entire welfare state by raising taxes on the wealthy, it’s not the only source of revenue that’s likely to exist. If nothing else, I’d guess a future Democratic president could raise taxes on income well below $250,000—probably down to $100,000—without incurring major blowback. And, as Barney Frank has pointed out, scaling back our overseas military commitments is also pretty popular—both in general and in specific countries—especially when money is tight and the country in question poses no direct threat. Unless there’s some geopolitical development in the next few decades that dramatically changes public opinion—a cold war with China, say—there’s likely to be hundreds of billions of dollars in politically gettable savings there, too. 

All of which sums to the following: Even absent new revenue, rising spending on Medicare and Social Security will be the political path of least resistance in the coming decades. And if the government is determined to bring its books more into balance, it turns out generating new revenue, or freeing up money from elsewhere, won’t be that hard. (Or at least raising enough money to muddle through for a long time even if we can’t balance the budget entirely.) While it may not be economically desirable to let the welfare state hoover up a larger and larger portion of government spending and GDP -- and while polls show the public opposes this in the abstract -- there will be no political imperative for Democrats to stop it. When actually forced to choose, no one wants their Medicare cut. 

Or put differently: If Obama isn’t able to nail down enough revenue to make a big down payment on the welfare state this time out, it doesn’t mean, as Douthat and Levin would have it, that no Democrat will ever be able to. It just means we’re not yet being forced to choose between more revenue and Medicare, at least not beyond the margins. (Though one can never discount the possibility that Obama will agree to Medicare cuts that are politically unnecessary—which, you know, he shouldn’t.) 

Having said that, I do think there will eventually be some effort to rein in Medicare spending, which is a far bigger driver of our long-term deficits than Social Security. Even a relative liberal like Obama has conceded that it’s going to cost future generations too much money. But I doubt that will involve a negotiation between Democrats and conservative Republicans like Ryan, to say nothing of the outright adoption of a Ryan-esque plan that Levin envisions. It strikes me as much more likely to emerge from a negotiation among Democrats. The Republicans will have very little leverage because Democrats can credibly attack them for wanting to slash Medicare, but the reciprocal attack doesn’t work—no one outside the most conservative enclaves is going to lose an election because they refuse to cut the program. (That explains why, even though they claim to want Medicare cuts, Republicans chronically resist proposing anything remotely specific.) And a negotiation among Democrats is probably going to focus more on lowering health care costs overall than Medicare benefit cuts per se. 

So yes, by all means Mr. President, please bargain hard for as much revenue as you can get. The Bush tax cuts were terrible policy that saddled us with trillions in debt for little discernible economic payoff, and they exacerbated income inequality to boot. But should Obama fall short of the revenue liberals would like to see him procure, let’s not presume the entire welfare state hangs in the balance.