In her speech at the Brookings Institution yesterday Senator Patty Murray (D-WA) threatened to allow tax increases on all income taxpayers to take effect January 1 if Republicans refuse to allow tax rates to increase on “the rich” and on successful small business owners.
SEN. MURRAY: So if we can’t get a good deal, a balanced deal that calls on the wealthy to pay their fair share, then I will absolutely continue this debate into 2013 rather than lock in a long-term deal this year that throws middle class families under the bus.
A member of the Senate Democratic leadership, Senator Murray claimed to be speaking for other elected Democrats:
And I think my party, and the American people, will support that.
How is this different from those Tea Party-affiliated and conservative Republicans who last summer threatened to block a legislated debt limit increase unless spending was aggressively cut?
Last summer there was a broad consensus that the policy consequences of not raising the debt limit would be potentially catastrophic. Today there is a similarly broad consensus that allowing all tax rates to increase January 1 would be catastrophic. CBO projects a recession in the first half of 2013 if taxes are allowed to increase and the spending sequester takes effect (another Murray threat if her demands are not met).
CBO: Under those fiscal conditions, which will occur under current law, growth in real (inflation-adjusted) GDP in calendar year 2013 will be just 0.5 percent, CBO expects—with the economy projected to contract at an annual rate of 1.3 percent in the first half of the year and expand at an annual rate of 2.3 percent in the second half. Given the pattern of past recessions as identified by the National Bureau of Economic Research, such a contraction in output in the first half of 2013 would probably be judged to be a recession.
CBO projects about 1.3 million fewer people will be employed next year if Senator Murray’s threat were carried through 2013 (see table 3).
Today Senator Murray’s threat matters only if elected Republicans refuse to agree to her demand to raise taxes on the rich and on successful small business owners. Without this disagreement her threat has no effect. Last summer the conservatives’ threats to block legislation raising the debt limit mattered only because President Obama and Congressional Democrats refused to agree to conservative demands to cut government spending. Had Democrats been willing to agree to the conservatives’ spending cuts, the conservatives’ debt limit threat would have had no effect.
Today Senator Murray or her allies could argue that those refusing to agree to their condition are, in fact, the ones “holding middle class taxes hostage.” Conservative Republicans could have argued the same last summer about the debt limit, that the debt limit increase was in fact held hostage by those refusing to cut spending.
Last summer conservative Republicans argued that the policy damage done by a debt limit increase was being exaggerated. Yesterday Senator Murray did the same about, arguing that allowing income tax increases on everyone to take effect would not be catastrophic. Both the Tea Party and conservative Republican members and Senator Murray argued that the effects of carrying through with their threat were undesirable but worth withstanding if necessary to achieve a more important policy goal.
The Budget Control Act signed into law last sumer increased the debt limit and cut spending, although not deeply enough to satisfy many of the conservatives who issued the threat. At the time I wrote their threat tactic was “undesirable, necessary, and effective.” Those wanting to cut spending achieved a medium-sized policy win, at a significant political cost to the Republican brand. Senator Murray may surmise that she will not be treated as harshly by the press as were conservative Republicans last year, despite her use of the same tactic and her threat to produce a similarly damaging economic outcome.
Unless her demand to raise taxes is met, Senator Murray is threatening to cause a recession in the first half of 2013. Her threat should be treated the same as the parallel threat made by some Republicans last summer.
(photo credit: captured from Brookings Institution video)