Recent coverage of the supercommittee budget negotiations has trumpeted the fact that some Republicans have agreed, in theory, to increase tax revenue. But this isn’t any kind of compromise, and Democrats would be crazy to take this so-called “concession,” even if it came attached to no spending cuts at all.
The Republican offer is a response to the fact that Democrats hold all the leverage. At the end of 2012, the Bush tax cuts are scheduled to expire. If that happens, tax rates would return to Clinton-era levels, and revenue would increase by $3.7 trillion over a decade. That would solve the medium-term deficit problem without cutting a single dollar in spending.
Of course, it would also effectively hike taxes on the middle class, which Democrats oppose, or claim to oppose. But if those tax cuts expire in a way that allows Democrats to avoid the blame, they could have a win-win.
It’s the flip side of the situation they faced at the end of 2010, the last time the tax cuts were set to expire. Democrats couldn’t afford to yank the economy off life support before the 2012 elections, and so agreed to extend the cuts in exchange for extending some stimulative measures like payroll tax breaks and unemployment insurance.
Now that the tax cuts have been extended through 2012, the Democrats can afford to hang tough. They can make the election a choice between the Republican vision of keeping Bush-era tax rates on the rich and slashing retirement programs, and the Democratic vision of higher levels of retirement spending financed by higher taxes on the rich. That’s a very favorable contrast for the Democrats. And if the two parties fail to reach an agreement, the tax cuts disappear automatically. The bottom line: The expiration of the tax cuts poses a huge threat to the GOP.
Republicans understand this problem, and their offer before the supercommittee is a tactical effort to reduce the potential risk. The GOP is offering to increase tax revenue slightly above current levels – about $250 billion over a decade – in return for locking in the Bush tax cuts permanently. And they are only offering this in return for Democrats agreeing to cuts in entitlement spending and privatization of Medicare.
I’d be willing to consider a deal that cut entitlements in return for higher revenue. But the GOP deal wouldn’t produce higher revenue — it’s merely a hedge. Jake Sherman and Manu Raju report that Jeb Hensarling, an arch-conservative on the supercommittee, has made exactly this case to his colleagues:
“In a 20-minute presentation Tuesday, Hensarling told his House Republican colleagues that it was in their interest to cut a deal now since Obama could keep the White House, and Republicans should look at the proposal as avoiding a huge rate hike in 2013, when the Bush tax cuts expire. The usually rambunctious House Republican Conference gave Hensarling a standing ovation.”
Republicans are publicly framing this offer as a concession, in return for which they must get tax reform and entitlement cuts. But if Democrats really want to cut a deal, they need to demand higher tax revenue without locking in the Bush tax cuts.
It is certainly true that many House conservatives are freaking out at the supercommittee Republican offer, insisting that the party can never allow taxes to go even one cent higher under any circumstances. But this is merely the expression of the party’s anti-tax fanaticism – they are so dogmatically committed to the anti-tax cause that they won’t even buy what’s essentially an insurance policy to protect against a huge possible tax hike. The split within the GOP is not a split between anti-tax fanatics and deficit hawks. It’s a split between anti-tax fanatics who understand how to protect their interests and anti-tax fanatics who are too uncompromising to do even that.