John Boehner is a Genius

September 27, 2013Danny Vinik 34 Comments

Turn the clock back a year. It’s the middle of the 2012 election and I tell you that President Obama will win a second term commandingly, Republicans will hold the House and Democrats will keep the Senate. On December 31, the Bush tax cuts expire and sequestration takes effect. Soon after that, we’ll hit the debt ceiling. President Obama also campaigned on raising taxes for those with incomes over $250,000, refuses to negotiate on the debt ceiling and everyone hates sequestration. Oh, and the Republican party will swing even further to the right in the aftermath of the election with Senate Minority Leader Mitch McConnell facing a primary challenge and Senators Ted Cruz (R-TX) and Rand Paul (R-KY) becoming leaders of the party. Over the next 12 months, what do you think the course of economic and tax policy will be?

Here would’ve been my guess:

Taxes raised for all those with incomes over $250,000
Capital gains and dividends taxed at a much higher rate, if not as ordinary income
Estate tax rises back to 40%
Payroll tax cut extension
Sequestration is rolled back with limited if any replacement cuts
Debt ceiling raised without a fight

Here’s where we may be at in just a couple of days:

Taxes raised for individuals with incomes over $400,000 and families over $450,000
Capital gains and dividends taxed at 20% (rising from 15%)
Estate tax rises back to 40%
No payroll tax cut extension
Sequestration is on the brink of becoming permanent
Debt ceiling is shaping up to be a major fight

That’s a lot of victories for Republicans and it’s in large part due to John Boehner. He has repeatedly out negotiated President Obama because he and his caucus seem more willing to break through the fiscal cliff, shutdown the government and default on our debt. In fact, Boehner is not willing to do any of those things more than Democrats are. He brokered a last second fiscal cliff deal that was a pretty big victory for Republicans under the circumstances (only raised taxes on individual income over $400,000). Over the current continuing resolution battle, Boehner is now hoping his caucus will give up their desperate demand to defund Obamacare and pass a clean CR. It’s looking like we could be heading for a government shutdown – the least damaging of all the potential fiscal crises, but damaging nonetheless. In the end though, this will likely be a huge victory for Republicans, even if they don’t treat it as such! Sequestration will stay in effect and while many Republicans don’t like the defense cuts, they are more than happy with the other cuts to discretionary spending. By changing the conversation to focus on defunding Obamacare, Boehner and his colleagues have made sequestration permanent. The upcoming debt ceiling battle is a place where Republicans have leverage. They know the President doesn’t want to breach it – even if he said he won’t negotiate – and Americans want there to be a negotiation. How this shapes up is anyone’s guess, but Boehner has put his caucus in an excellent shape.

Of course, not all of this is Boehner’s doing. A lot of times, he’s gone with the flow and benefited thanks to the credible threats of his right flank to do crazy things. He’s had trouble passing a farm bill and immigration reform doesn’t have a chance in the House. But nothing was going to happen no matter who was speaker. In addition, despite repeatedly promising Tea Party Republicans that they would take on Obamacare and find a way to stop it, he has convinced them to back off and move to the next battle. Most importantly, he’s done so without losing his speakership. I expect he’ll do the same with the debt ceiling since Boehner knows we can’t breach it. But it’s going to be very hard for the President not to negotiate it all. If Boehner extracts any concessions from him, it will be a monumental victory.

So while everyone is saying that John Boehner is irresponsible and has lost control, I think he’s a genius. A lot of the time, he’s going with the flow of his caucus. But he’s also used their craziness as leverage to extract meaningful concession from President Obama and Senate Democrats. At the same time, he’s avoided any fiscal disaster while keeping his speakership. I still hold out hope that he’s going to find a way around a government shutdown. He may not have an exact plan, but he has a strategy:

Lie to his caucus, allow them to “take control” and make it seem as if disaster will strike
Use that desperation to subtly change the conversation to the upcoming disaster and extract concessions from Democrats
Go back to his caucus, say he got everything he could and convince them to vote to avoid the crisis at the last minute
Keep his speakership by allowing himself to seem weak and extract some concessions
Lather, rinse, repeat

It’s worked over and over again and allowed Republicans to swing policy to the right in situations where they have zero leverage. Boehner has stopped the base from causing a fiscal crisis and still kept his speakership. Call him irresponsible. Call him crazy. Call him reckless. Call him whatever you want, but John Boehner has been a brilliant speaker for the Republican Party and Democrats have underestimated him for far too long.

A Few Republicans Are Crazy But Consistent

September 26, 2013Danny Vinik 1 Comment

When I read National Review reporter Jonathan Strong’s piece this morning that some House Republicans weren’t happy with their first offer to President Obama in return for raising the debt ceiling, I was shocked. The offer is basically everything House Republicans could ever want and they weren’t happy with it?! But as I’ve thought it over, it actually makes a bit of sense. From Strong’s article:

“It definitely has a lot of goodies in it – things that arguably would grow the economy and arguably would generate revenue. But still you have to address the spending problem,” said Representative Mo Brooks of Alabama.

“The reason that we have to raise the debt ceiling is because we have deficits. The reason that we have deficits is because we spend a whole lot more money than we bring in in revenue. And this debt-ceiling package does not fix the underlying cause of the problem, which are the deficits,” he added.

Other House Republicans expressed similar sentiments. This is actually consistent with what House Republicans have been screaming about for years: more spending cuts in return for raising the debt ceiling. Now, our deficits are falling fast and the long-term debt has decreased significantly so it’s absurd to be cutting spending more. But this makes more logical sense then the christmas tree list of demands in the Republicans first offer.

The ironic thing is (and always has been) that by having the U.S. risk default, it actually drives up our borrowing cost and increases our debt. If we were to breach the debt ceiling, it would likely increase our long-term interest payments by nearly a trillion dollars. So it makes absolutely no sense to use the debt ceiling as leverage to extract spending cuts or anything else from the president. It’s a crazy, irresponsible tactic. The debt ceiling should be forever abolished.

But at least some House Republicans haven’t lost sight of the fact that their original reason for using the debt ceiling as an extortion device was because of the long-term debt. Business Insider’s Josh Barro wrote today that all of this shows that “the pretense that debt limit fights are about the public debt is over.” For most Republicans, that is certainly the case. But Strong’s article demonstrates that there are some who are still sticking to that principle. They are reckless, rash and stupid for holding the debt ceiling hostage, but unlike the rest of their colleagues, they are also consistent.

An Easy Solution to D.C.’s Rapid Rehousing Program

September 26, 2013Danny Vinik Leave a comment

A story in the Washington City Paper caught my eye yesterday not, because of the complexities involved in it, but because of the obvious solution. As part of the 2009 stimulus, D.C. implemented a new program called rapid rehousing that puts people up in apartments for very short periods of time (around fourth months) so that they feel a sense of urgency to find work and become self-sufficient. If you tell someone they can have housing indefinitely, that incentivizes people to delay looking for a job or cheap housing. The rapid rehousing program tries to fix that problem. If a person cannot afford the apartment in those four months, the program generally extends the program up to a year. But the people in the program often don’t about that so the pressure is still on to find work.

In 2011, when the stimulus funds ran out, D.C. continued running the program itself, but it has run into a new problem: apartments in D.C. are too expensive. From the story:

But the problem, as Wright notes, is that housing has gotten very expensive in D.C. That’s meant a double whammy for the city: more homeless people who can’t afford to pay the skyrocketing rents, but also fewer affordable units for the city to place them in through rapid rehousing.

“We don’t have apartments,” Berns says, agreeing with the residents who have struggled to find housing. “They’re right. This has been my biggest frustration, that we can’t put them in an apartment that costs thousands of dollars per month, with the thought that at the end of four months or a year or even two years, after rapid rehousing ends, that they’d put up that rent.”

Placing the participants in more expensive apartments, says Berns, would be “setting them up for failure,” since they’d have trouble paying the rent once they’re on their own and could end up back in the shelters or hotels.

“D.C. has failed to adapt its rapid rehousing program to the realities of an expensive housing market and a highly competitive population of renters,” saysAmber Harding, an attorney with the Washington Legal Clinic for the Homeless. “Homeless families, many with poor credit and low incomes, are competing with renters with good rental and credit histories and much higher income.”

As a result, there’s a tremendous backlog. Berns says his agency has plenty of funds to place more families into rapid rehousing but simply can’t find enough affordable units.

The problem here isn’t D.C.’s rapid rehousing program, as Harding suggests. It’s that D.C. is too expensive! You know what would be a great way to make D.C. less expensive? Reducing the height restrictions on buildings here. Right now, supply is constrained by the 1910 Height Act as buildings are capped at 90 feet on residential streets and 130 feet on commercial ones. It’s a draconian law that artificially limits the number of housing units available in the city and keeps prices high. The city is finally ready to revise the law, although it is in the hands of Congress in the end.

Last week, D.C. Mayor Vincent Gray submitted his recommendations to Representative Darrell Issa (R-CA) calling for new height regulations that would allow buildings to be 1.25 times the width of streets inside “L’Enfant City”. This would allow buildings to reach 200 feet in the air on streets 160 feet wide. It would be a big increase, but it still doesn’t go far enough. Abolishing the height act entirely and allowing skyscrapers into downtown D.C. would allow residents to take full advantage of D.C.’s infrastructure while providing a larger customer base for nearby stores and increasing economic activity (meaning more tax revenue as well). In addition, it would help programs like rapid rehousing by decreasing rents and allowing a sector of affordable housing to flourish. Sounds like a no brainer to me.