Cliff’s Notes

Everyone is adding up the balance sheet of the tax deal, and any assessment that uses standard GAAP methods will find that it is a textbook compromise—that is, it had something for everyone to like and hate.  (By the way, “GAAP” in this context does not mean “Generally Accepted Accounting Principles.”  Heck, if the U.S. government used real GAAP, it would have been placed in receivership on about Day Two of the Obama presidency.  Washington GAAP stands for “Government Approved Atrocious Policy.”)  We’ve already linked to people on both sides of the question.  I’ll just add that the most disappointed person in Washington right now has to be my old pal Norm Ornstein, because he’s wedded to the view that the GOP is hopelessly obstructionist.  Norm better hope the GOP gets its extremist mojo back by the time the debt ceiling expires in a couple of months.

There are some odd aspects of the denouement of the tax chapter of the story, which has several chapters to follow.  In other words, our plunge over the fiscal cliff, however brief, had about it the same unreal peril as a person going over Niagara Falls in a heavily padded and shock-absorbent barrel: more threatening as a spectacle than in reality.

Some observations:

First, most of the folks lamenting the deal on the right are really lamenting that we lost the election.  Guess what?  This is what happens when you lose elections.  I’m surprised the damage wasn’t greater.  In fact, the most startling thing to me is how much Obama and the Democrats gave away to reach the deal.  I conclude from this that the White House was terrified of the sequester, not so much for the defense cuts, which liberals don’t mind at all, but because so many of the Left’s key constituencies rely upon discretionary spending that would be cut.  If we went fully over the cliff, it might have been very difficult for Democrats to get back all of the discretionary spending they want and need.  But all they got was a two-month deferral on the sequester, the prospect of which is unclear at the moment.

Second, even with the position of strength Obama had after the election, it is extraordinary how much he let Joe Biden give up for the sake of a deal, starting with tossing over the new $50 billion “stimulus” Obama wants that is really just a blue-state bailout.  The overall size of the revenue package is remarkable for where it came out.  As Conn Carroll points out, “Remember, Obama’s first offer was for a $1.6 trillion tax hike and an infinite debt limit hike. Boehner countered with $800 billion. The final deal was for only $600 billion.”  This rather reminds me of Churchill’s mordant line about the argument over battleships between the Exchequer and the Admiralty in 1909: “The Government asked for Four Dreadnoughts, the Admiralty wanted Six, so naturally we compromised at Eight.”  I’m amazed that Biden didn’t hold out for some kind of treatment of the debt ceiling.

As Churchill reminded us about the difference between politics and war, in war you can only be killed once, while in politics you can be killed many times and still come back to fight another day.  To switch metaphors, conservatives lost this hand, but played a band hand, dealt by a devastating election loss, about as well as could be expected short of running a huge risk that obstinacy would have swung public opinion quickly decisively around quickly.  But bluffing works better in poker than in politics.  The next hand looks better for Republicans if they can avoid demoralizing themselves with excessive self-criticism.  Beyond the debt ceiling (which I think is only a limited opportunity), the preservation of so many stupid tax breaks and preferences means the ground is still fertile for sweeping pro-growth tax reform based on the idea of getting rid of special tax breaks and lowering rates across the board.  I’m amazed that Obama didn’t pocket Boehner’s offer to raise revenue by cutting tax breaks, and then demand higher rates on the rich on top of that—a fight he probably would have won right now.  While he may yet try for reducing tax breaks in a few months, I doubt he will succeed.  This was his window, and it is likely now closed.  This may turn out to have been a major blunder on Obama’s part over the next four years and beyond.

Bonus feature: Yuval Levin’s chart shows how unserious this deal was in terms of reducing the deficit–

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