The Price of Consensus: Obama and Congressional Republicans

President elect Obama is calling for "swift and bold" action on his "American Recovery and Reinvestment Plan" to stop the hemorrhaging of the economy. He also wants to change the way Washington does business, "turn the page" on the petty partisanship of the last decades. He's said to want "substantial Republican votes" for the plan. Politico reports he's looking for as many as 80 votes in the Senate, requiring that more than twenty Republicans climb on board. He's not only invited congressional Republicans to offer their ideas, he is building tax breaks into his plan that Republicans say would make it easier to support. (For updated reporting on this debate over the recovery package go here.)

Now Barack Obama has proven his political brilliance time and time again, so he has earned the benefit of any doubt. But frankly, this strikes me as a really dubious idea - both in terms of policy and politics.

In policy terms, the economy needs exactly what Obama calls for -- swift and bold action.
But inviting Republicans into the discussions insures only one thing -- delay. Their leaders, Mitch McConnell and the perpetually tanned John Boehner, have already scorned the need for dispatch, with Boehner calling for "public hearings in the appropriate committees." Delay will simply ebolden the lobbyists swarming to get their special interest built into the plan. Obama has a better chance getting a sound bill passed quickly than opening it up to the feeding frenzy that is the normal legislative process.

Second, Obama's aides say sensibly that they are looking to "do what works." But tax cuts come in a distant second to public investment in actually creating jobs. We saw that last year when the rebate checks didn't have much effect. Much of the money sensibly was used to pay down debt and didn't do much to lift consumption or create jobs. Much of what was spent went to products made in China. In contrast, public investment will be spent, and it is more likely to create jobs here.

Reports are that the Obama plan, still being put together, will contain about 40% in tax cuts. Half of those are devoted to a $500 tax credit for middle and low income workers. Since middle class tax cuts were a centerpiece of the Obama presidential campaign, he's right to dismiss those who say these are designed solely to win Republican support. He's fulfilling a campaign promise that was designed to win voter support. And the money can be dispensed rapidly so the whatever effect they have could be felt quickly.

But the other half of the tax package reportedly will go to businesses -- $150 billion or so. These are said to include a Republican measure - blocked repeatedly last year by the Democratic congress -- to allow businesses to write off current losses retroactively against taxes paid on profits over the last five years. This will benefit significantly the very financial and housing companies that inflated profits blowing up the bubble that brought us this mess. Worse, there is little reason to assume that giving a tax break to businesses that are losing money will do much to create jobs. Treasury and the Federal Reserve have pumped in trillions in equity and credit to banks without getting them to make loans. Most companies will use the break simply to bolster their books. Businesses hire people when the markets for their products expand, not because they have more money in their coffers.

There's also talk about a tax credit for companies that create new jobs. This sounds better but it will mostly reward companies for jobs that they would have created anyway. And worse, it will generate a tsunami of fraudulent maneuvers designed to qualify for the break. A retail store firing clerks because business is off isn't likely to add someone to get the tax break. But the less scrupulous could well lay off three workers and hire back the one they meant to retain anyway to pocket the benefit. The administration will no doubt add provisions designed to discourage such fraud. But enforcement will be a nightmare with only one saving grace: effectively policing the provision will surely create more new jobs than the tax break itself.

Politically, Obama's generosity is unlikely to be rewarded. The congressional Republican caucus is more conservative and clueless than ever. They will see Obama's pe-emptive concessions as weakness, not generosity. They are already pocketing them and asking for more. Boehner is grousing about "the size of the package" Mitch McConnell responded by calling for more tax cuts and peddling the lunatic notion that rather than providing grants to states and localities to avoid massive layoffs -- perhaps the most effective dollar for dollar spending that we can do in terms of saving jobs -- the federal government should loan them the money instead. Republicans don't want unemployment insurance to go to part-time workers, and oppose paying for health care for those who have been laid off. They are pushing for permanent reductions in capital gains and income tax rates for -- imagine our surprise -- business and the highest income earners. These are the very ideas that helped get us into this hole.

My guess is that Obama's maneuver reflects a strategic decision, not a tactical one. Substantively, he wants a broad and inclusive package -- "making sure [consumers] have money in their pockets, as well as "incentives for business" and "investing in job creating growth industries..." Politically, he seeks as broad a consensus as he can get on a bold measure in desperate times.

But he's likely to pay a price both in delay and in diminished effectiveness for the plan that emerges. He'd be more likely to get a big and bold plan passed swiftly if he had put together his package, called on the Congress to pass it, invited Republicans to join or take the risk of standing in the way, while saving any concessions on business taxes until the end if he actually needed to round up the votes. I suspect that he'd have won just about as much Republican support that way.

Obama seems to be choosing a path that builds consensus at the potential cost of effectiveness. But if the plan fails, he'll take the blame no matter how many Republicans vote for it. And Republicans will attribute the failure to government spending, no matter how much of the plan consists of tax cuts.

We shouldn't treat this as a spectator sport. Americans should be getting in touch with their legislators -- particularly Republican Senators and conservative Democrats -- and calling on them to support the swift action the country so desperately needs.

Comments

[ObjectiveRealist]

So far, Obama has successfully started the bidding low enough to solicit ideas from anybody with the courage to say "$800 billion is not enough" and to let the most resistant Republicans put themselves on the defensive against the US public, by suggesting that what we really need now is more of the same: tax cuts for the most over-privileged 1/10th% of the populace. I'm going to ignore the media for at least the first half of next week, assuming that Republicans will have to budge on the budget by January 22nd. No more than one Obama speech or press conference after his Inauguration, McConnell and the other hardcore obstructionists are going to understand how badly they have marginalized themselves by clinging to boom economy tax policies during the worst bust most voters have ever seen.

[Pdubya]

yep, all we need is a bigger printing press for the federal reserve notes.

god help us.

[veracity]

Dear Mr. Borosage:

Obama's biggest challenge, and by far the biggest threat to the success of his administration, is the DINA "Democrats" who actually are "TO THE RIGHT" of where "Moderate Republicans" were back in the Eisenhower and Nixon administration, right up until President Ford hired Cheney and Rumsfeld, and the Republican Right became the unrepetent imperial police- and war-state Right (as Lefties so often demonize Nixon's worst abuses as being).

Needless to say - but it, sadly, does need to be said - that the Cheney-Rumsfeld nightmare agenda has received TERRIFIC Support from so-called "DEMOCRATS". For example, Nancy Pelosi abjectly REFUSES (refused) to find ANY connection between the CRIMINAL CONVICTIONS of Jack Abramoff, Ken Lay, and Lewis 'Scooter' Libby and the Bush -Cheney administration - even though the Bush-Cheney WH gave Enron "cover" (protection) to run its West Coast energy extortion racket (coordinated plant shutdowns, overloaded grids, fixed bids, other gimmicks) to extort West Coast ratepayers out of billions of dollars; Even though Abramoff visited the WH frequently, and even though Libby was both the VP's Chief of Staff, AND the president's senior advisor!
I haven't even mentioned Halliburton's no-bid, no-oversight, no-performance contracts, its moving to Dubai, or the $9-billion that went "missing" from Iraq - in first weeks of US occupation, ALONE!

Every one of these scandals get a "FREE PASS" from the Pelosi-Lie­berman-Hoy­er-Reid-Ro­ckefellter­-Feinstein­-Schumer-E­manuel "Democrats"

who, needless to say, are the "BUBBLE" that now surround Mr. Obama.

[Sustane]

25 billion for AIG and now another 25 billion for Health Information Technlogy based o private meetings with IBM?

According to the Wall Street Journal http://online.wsj.com/article/SB123120010817055565.html " Last month, IBM CEO Samuel Palmisano advised President-elect Barack Obama's transition team that a $30 billion government investment aimed at digitizing health records, expanding broadband access and improving the electrical grid could create more than 900,000 jobs," The presentation in a conference call with transition team members including Carol Browner, who has been named the White House coordinator of energy and climate policy, and Julius Genachowski, a top technology adviser for the president-elect.

HIMSS the vendor driven membership organization also submitted a self serving report recommending the same investment. This industry installs software that prevents hospitals in the same city (Palo Alto) with the same vendor from being able to exchange client records?

You don't need earmarks when you flood an entire industry with billions (that is 25,000 million) of money with no study that has shown any cost savings. Do we need to invest in electronic medical records yes of course but is that really the first way you change your health care system or is it simply the result of young tech driven people in the Obama camp falling prey to big name companies with cache like Google and IBM advising the campaign before they are even in office? Training and hiring more nurse practitioners and streamlining payments would pay off faster.

[PigLipstick]

I clearly recall Ralph Nader's appearance on Democracy Now the day after the election. His concern over Obama's massive funding by Coporate Banking and Wall Street interest groups lead him to issue the following warning;

"Barack Obama has raised far more money than John McCain from Wall Street interests, corporate interests and, above all, corporate lawyers. And the question to be asked is, why are they investing so much in Barack Obama? Because they believe he’s their man.

SO, PREPARE TO BE DISAPPOINTED, but keep your hope up."

With the advent of HDTV, it's much easier to see the strings !

[widollar]

Mitch McConnell and John Boehner will do everything they can to undermine Obamas plans to clean up the horrible mess created by the misfits in the Bush regime. McConnel and Boehner are both rotten opportunistic politicians.

[ConservativeHippie]

The first thing that needs to be a part of of any stimulus or the remainder of the TARP funds for that matter is to nationalize the Federal Reserve. It's an "independent" bank that is out of control. We're in to deep to eliminate it altogether but they need to answer to someone and now is the time to act.

[PigLipstick]

A 95 year old institution created and maintained by the corporate banking oligarchy, GOOD LUCK !

[schatsie]

If they audit all the tax revisions they might come up with more in taxes based on the data...think about it...Did GE really pay for an apartment in Manhattan and deduct that from it's taxes and his seats at the Met etc...????

[sandals]

OK, we just continue to throw money at the problems, but instead of tax dollars going to this why not just give each tax paying family $250,000., give everybodya fresh start on the new year with good credit.
I bet if we took our tax dollars and did this, just think how much it would stimulate the economy,
That is a short term, but still put in the long term agenda, we are hurtin now giving me a single mom $500 bucks and a married couple 1000., what good will it do, we will just give it to a bill collector.if you were to go this route it would put a shot in the arm of the eonomy and start us back on track, the banks are continuing to rob us blind with no oversight.
so if we can give the banks all this money than why not us the taxpayers!

[ConservativeHippie]

Excellent thinking. It would go a long way towards stopping the foreclosure tsunami and indirectly put money into the banks. It would provide the oppurtunity for small businesses to start up or expand, creating jobs. These small businesses are far more likely to provide the fresh ideas our country needs to get out of this ditch.

[research]

Obama and the dems need to change the stimulus plan:

Since it's getting too complicated and will thus be delayed, we need a simpler plan:

Give Obama 750B$ no questions asked.

We tried it your way with the bankers and it didn't work.

Now we try if our way.

Nuke the filibuster.

[opines]

With an all millionaire plus Senate and nearly the same in the House, the middle class and below should expect only crumbs.

How to cope with mounting unemployment will be the true battleground. It will be between government created jobs, e.g., infrastructure, or tax incentives to business in the hope of creating jobs. Yes, there will be both, but in what proportion is the issue.

At the start of the New Deal during the Great Depression, the debate in part was characterized as 'Production for Use' or 'Production for Profit'. For Profit was the eventual winner.

[Swedishgal]

I know Obama is pro nonpartisanship but he needs to remind the Repubs that they lost BIG in November because of the very policies they will undoubtedly push for and what caused this mess to begin with and to take the package or leave it but understand that there will be consequences for their actions and Reid needs to grow some balls and call 'em on it if they threaten a filibuster and make them actually filibuster instead of cowing to them. I'm so sick of spineless Democrats where Repubs are concerned. I would love to see the Dems with a spine for once! Just keep reminding the Repubs they lost in November because of bad economic policy and to get over it and move the country forward for once in their sorry useless lives.

[rr52]

We can talk to Republicans until the cows come home, They seem to be all the same. Our state senate here in Michigan mimics the feds so much it's like they are cut from the same mold. They have perpetually sided with big polluting business, have failed to work with a predominantly Democratic House and our governor keeping Michigan from having a Renewable Portfolio Standards RPS to entice green industry to the point Michigan is currently looking for two more brand new coalburners.

Republicans leaving their agenda behind to unite on any level is so far fetched. I'll believe when I see it. If Obama can bypass the Republicans, he should do so. There won't be any cooperation there that's for sure.

[rocketman69]

Giving $500 to singles and $1000 to couples. Where have I...oh yeah, six months ago. And rushing a massive govt spending bill through?...oh yeah, two months ago. I thought you dens didn't want a Boosh III, but here are the same old ideas. And while I'm sure all the unemployed NYT reporters will be happy to work on a road crew, some other Americans would like a easy job like a NYT reporter. The only jobs Obama is proposing are crappy ones that are so well paying, that no one wanted them before. How can you be against helping businesses getting help (exept for Union workers at GM and Chrysler) and want to create jobs? Do you want the govt to hire everyone?

[CarlDavidson]

We're going to need a laser focus on what's right, a constant public spotlight and no end to local battles.

There will be what is essentially a class struggle over how Obama's billions are deployed. One side of this 'broad consensus' will want them to go to 'greasing the skids' of credit by paying off gambling debts in derivatives, and tax cuts, ie, the unreconstructed supply siders, or the old neoliberals dressed up as born-again Keynesians. The other side, the demand siders and us, will want to deploy the stimulus as directly as possible, as purchase orders for productive businesses, ie, where it will do the most good.

Even within our side of this, there will be further battles. One side will want the money deployed through existing banks with little oversight, so they can line their pockets. Our side should fight to have funding deployed through local public credit unions, with supervision by allied unions, civic groups and local government, with transparency. If you don't open your books, don't apply.

There will also be battles over what projects to jump start. Here in our area, all the local suspects are lining up to get ObamaBucks for highways, where the work often gets done by firms that outsource their labor, bringing in nonunion temps. We want to rebuild bridges and dams, with the rivers as 'greener' industrial transport, with local union workers at union scale.

So we have to fight it out, or the ObamaBucks aren't spent wisely.