And the GOP is in danger of losing the narrative. Most of the noise is coming from Democratic proposals for higher taxes, while Republicans have not taken any entitlement-spending-cut scalps.
In all likelihood, Hensarling will succeed in his conference with the idea of making the Bush tax rates permanent in return for about $300 billion of loophole-closers. The deeper-tax-rate-cut Toomey reform doesn’t seem to be gaining traction.
Trouble is, so called tax reform would probably be handed over to the tax-writing committees in the Senate and House for a decision next year. At deal-time this year — if there is a deal — we won’t know what the tax-rate picture will actually look like. At least that’s a risk. But it’s possible in a worst-case scenario that personal-deduction limits will be hammered out up front, without any assurances of lower tax rates next year.
All this leads me back to this question: Where are the super spending cuts? Nowhere. So why not fall back on the across-the-board budget-cutting trigger known as sequestration? That’s the $1.2 trillion backup plan if a $1.5 trillion deal cannot be reached. (Hensarling called the $1.2 trillion backstop very important.)
Then at least some spending will be cut. And the trigger is probably better than a deal that uses Iraq and Afghanistan spending cuts that would happen anyway or fiddles around with the current-services baseline from which reductions are measured.
For defense hawks who object — since 50 percent of the trigger would come out of national security — any spending measures would have a shelf life of only one year: 2013. After that, new presidents and Congresses will do what they will.
In another interview, congressman Ron Paul (now in a dead heat for first place in Iowa polling) told me the GOP should forget tax hikes and trigger $1.2 trillion in spending cuts. Out on the campaign trail, Newt Gingrich agrees.
But for investors and people in business, a super tax hike would be the worst possible outcome. So take the spending-cut sequestration now, and then fight the real battle in November 2012. That’s better than a supercommittee deal at any cost.
– Larry Kudlow, NRO’s economics editor, is host of CNBC’s The Kudlow Report and author of the daily web log, Kudlow’s Money Politic$.