Author Danny Vinik

It’s All About Obamacare

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Wonkblog’s Ezra Klein penned a piece this morning that misses the main reason why we are rapidly heading towards a government shutdown. Klein compares the current negotiations over the continuing resolution to the ones that took place in 2011 and sees two main differences:

1) In 2011, the White House knew whom to deal with. Back then, House Speaker John Boehner actually did seem reasonably in sync with his party on these issues, and so the White House was able to negotiate with Republican leadership on a deal. Today, the relevant negotiations are happening in the Republican Party, with GOP leadership trying to fight conservatives who want to shut down the government, and no one knows who actually has the power to cut and close a deal.

2) In 2011, the White House was willing to deal. The White House believed, in its gut, that Republicans had been given a mandate in the 2010 elections to extract exactly the kind of concessions they were demanding. In addition, the White House believed President Obama would be a likelier bet for reelection if he could cut a “grand bargain” with the newly resurgent Republicans, taking their key issue away from them.

This year, it’s the White House that won the last election, and so they see no popular legitimacy behind Republican demands. In addition, they are deeply, fervently committed to the proposition that they will never again negotiate around the debt ceiling, as that’s a tactic history will judge them harshly for repeatedly enabling. So even if Boehner could cut a deal on the debt ceiling, the White House isn’t open to negotiating.

Both of those points are correct, but they obscure the fact that for House Republicans, these fiscal fights are all about Obamacare. That’s been the key all along.

There is an inherent contradiction in the Republican belief that Obamacare will be an unmitigated disaster and their desperate, politically suicidal attempts to defund the law. If the law is going to catastrophically fail, the Republican Party should have no problem waiting for that to happen and use it to take back the Presidency and Senate in 2016. If they really believe it will be such a disaster, then they shouldn’t threaten a government shutdown over it. But House Republicans are making that threat and many are willing to follow through on it. That indicates that Republicans are worried that Obamacare will succeed and that’s why yesterday, Sen. Marco Rubio (R-FL) said, “this short-term budget represents our last chance to stop it.”

In fact, the Republican Pary’s last chance to stop the law was the 2012 election. This fight is over and Obama has won. He’s not going to delay the law or defund it, but House Republicans are so against it that they will do anything to stop it. As Rep. Lee Terry (R-NE) said today, “Obamacare is worth throwing yourself on the sword.”

The GOP doesn’t care about cutting spending, approving the Keystone XL pipeline or cutting taxes. Right now, it’s all about Obamacare.

Two year ago, the White House and Republicans could negotiate with each other because both had something the other wanted and were willing to compromise (barely). The same is true today, but the White House will never, ever defund the law and House Republicans will not accept any deal that doesn’t do that.

That’s what really makes the 2013 showdown different from 2011.

Sen. Mike Lee Takes The Lead on Conservative Tax Reform

Danny Vinik 3 Comments

At the American Enterprise Institute today, Senator Mike Lee (R-UT) unveiled the broad outlines for his tax plan, which he will introduce into the Senate in the upcoming days. The plan focuses on broadening the base, lowering rates, consolidating tax brackets and simplifying the tax code. However, the emphasis of Lee’s plan is to eliminate the parent tax penalty. Here’s how Lee described the penalty today:

Under the current system, all seniors are entitled to the same benefits, based on their total lifetime contributions.

But parents are required to contribute to this system not once, but twice. First, when they pay their taxes, just like everyone else. And then again, by bearing the enormous economic costs of raising their children, who in time, of course, grow up to become the next generation of taxpayers.

Under the current system, parents receive no additional benefits for having contributed or sacrificed hundreds of thousands of additional dollars raising their kids.

Lee’s plan, appropriately titled the Family, Fairness and Opportunity Tax Reform Act, creates a $2,500 per-child tax credit applicable to both payroll and income taxes. This last part is particularly important. Many poor Americans don’t pay income taxes, but they do pay payroll taxes. Making the credit applicable to payroll taxes allows those low-income parents to benefit from it as well. This corrects the parent tax penalty for all parents.

The freshman senator emphasized later that the purpose of this credit was to correct an unfairness in the tax code, not to influence the childbearing decisions of Americans.

“My plan would simply level the playing field to treat all taxpayers more equally,” he said. “It’s not social engineering.”

The Family, Fairness and Opportunity Tax Reform Act would create two tax brackets. The first would be at 15% for individuals with incomes less than $87,850 (and double that for married couples). All income above those thresholds would be taxed at 35%. In addition, Lee would create a new mortgage interest deduction capped at $300,000 worth of principal and a new charitable deduction available to all taxpayers, not just those who file itemized deductions. Both of these are alterations to current popular deductions intended to distribute the benefits of them more evenly across the income spectrum. At the moment, high-income homeowners reap most of the benefits of the home interest deduction as they pay a large proportion of mortgage payments. Low-income individuals are also less likely to itemize their deductions so they are unable to take advantage of the charitable deduction in the current system.

Lee’s plan also eliminates special interest loopholes, the state and local deduction and repeals Obamacare taxes and the AMT. You can read the rest of it here. He estimates that it will raise revenue equal to approximately 18-20% of GDP, which is right in line with the historical average. The Joint Committee on Taxation will take it up in the near future after Lee officially files the bill and will score it. Hopefully others will look at the distributional impact of the plan as well. It’s a promising piece of legislation that deserves an honest debate and conversation. I’m looking forward to having it.