After protracted and difficult negotiations, it appears that a payroll tax cut extension along with an extension of unemployment insurance and retaining current fees for doctors has been agreed to by both sides in Congress.
How should we interpret this success? Some are heralding it as evidence that the political ice jam has broken and that our dysfunctional politics are not quite so dysfunctional after all. Others argue that a newly aggressive president is now reaping the benefits of his tougher negotiating stance. A third explanation is that Republicans simply didn’t want a fight over this issue given their well-known support for lower taxes.
The reason all of this matters is because it may provide clues as to what can be achieved between now and November. If one believes there has been a thaw in the political ice, then one can hope that further progress will occur on tackling jobs and deficits this year.
If one believes it is the White House’s newfound back bone that made this possible, then expect to see the president discard his post-partisan stance for a much more robust attempt to clarify what he would do if reelected. As Ezra Klein has noted, this seems to be working. The president’s poll numbers have been rising (although this could simply reflect the improving economy), and Republicans may have started to worry about voter disenchantment with a party that almost never compromises.
If one chalks this up to a Republican tactical assessment that fighting a payroll tax extension is simply bad politics, then the implication is that nothing much has changed. Over the longer run, Republicans are not going to give an inch on either jobs or deficits. Combined with the president’s newfound assertiveness, the implication is that no new legislative action of any significance is in the cards. Each party is hoping for a mandate from the voters to create jobs and reduce deficits in a way that is consistent with their own principles.
Putting this all together, my view is that nothing will happen between now and the election. What we should expect instead is a rhetorical debate throughout the campaign and then all-out-war once the election is over. At that point, during the so-called lame duck Congress, decisions will have to be made about the expiration (once more) of the lower payroll tax rate, the extension of the Bush tax cuts, and whether to allow a budget sequester that will decimate both defense and non-defense appropriations starting in 2013.
Sentiment inside the Beltway has turned sharply against China. There are many issues where the two parties sound more or less the same. Trump and others in the administration seem heavily invested in a ‘get very tough with China’ stance. It’s possible that some Democrats might argue that a decoupling strategy borders on lunacy. But if Trump believes this will play well with his core constituencies as his reelection campaign moves into high gear, he will probably decide to stick with it, if the costs and the collateral damage seem manageable. But that’s a very big if, especially if the downsides of a protracted trade war for both American consumers and for American firms become increasingly apparent.