Major government policy processes, including the ongoing debate over the nation’s finances, resemble icebergs. The things we see on the surface—the congenial handshakes, hard-edged rhetoric and leaks to favored journalists—mask two other levels of activity.
The lowest, and most hidden, level is the one inhabited by the analysts who work out of windowless government offices; or slightly plusher digs if they work for a lobbyist, trade organization, university or think tank. These people are working the green spreadsheets, trying to model various combinations of taxes, spending and economic growth, in order to estimate how all the proposals bouncing around publically and privately will actually affect the federal budget over the next several years. They are the keepers of the estimates, assumptions and simplifications that tell us how likely we are to reach whatever budget goal their directors are trying to reach. Their work matters: let me assume 4% annual real GDP growth for the next decade, and I can make some pretty outlandish proposals smell like roses.
In between those two layers lie the real negotiations among the Congressional and executive leadership. It’s here, in what once were smoke-filled rooms, where the deals get cut. Sometimes, during the dealmaking process, this layer of ice rises up to the surface, allowing journalists, bloggers, chief economists, and just about everyone else to react to elements of a proposed deal. This is one of those times. Though I can’t say that I’m invited to these negotiations, we can infer a few things from changes in what’s above the surface.
Over the past week or so, for example, Republican leaders have been shifting their ground on the issue of upper-income tax increases. House Speaker John Boehner still maintains his opposition to tax rate increases, but he’s become less adamant about using his House majority to block them. Put that shift in the context of the steady post-election rise in President Obama’s approval ratings and the interplay among the policymaking levels becomes clearer. I think it’s significant that Speaker Boehner reassigned House committee chairs away from several Tea Party Republicans and toward more centrist representatives. Similarly, Senator Jim DeMint’s decision to resign and promote his firmly conservative stance from a conservative think tank suggests that, balance of Congressional power has shifted toward the political center and acceptance of some aspects of the president’s tax agenda. (Hearing about Senator DeMint’s decision to resign reminded me of LBJ’s colorful (and not repeatable on this blog) comment about what he’d want his enemies to do from inside the tent pointing out rather than from outside the tent pointing in.) Senator DeMint seems to have stepped outside and may prove to be an irritant to both Democrats and Republicans who stay behind.
I doubt that the Republican Congressional leadership will be able to deliver the votes needed to reach a majority in the House and to close off debate for a vote in the Senate unless the President gives ground on expensive programs such as Medicare. Recently, Obama has hinted that he would compromise. For reasons I have trouble understanding, many liberals object to means testing—higher costs for higher incomes—for programs such as Social Security and Medicare, though this might be a place for compromise.
All that says to me is that higher income folks should be expecting higher taxes and getting smaller government benefits. Just how much remains an open question. I read recent headlines about specific percentages at specific marginal income levels to be tip-of-the-iceberg, headline grabbers, aimed at testing public and interest group opinion rather than actual policy objectives, but the overall message is clear, be prepared for more taxes and less stuff. Many of us are likely to be increasingly dependent on our own means, and particularly our investment returns, to make up the difference.