Politics & Policy

Limiting the Damage

Taxes are going up on almost everyone. The government is trying to extract additional revenue from the economy in the most economically damaging way possible, with tax-rate increases that undermine incentives to work, save, and invest. This is happening at a time when economic growth has been weak, and when many credible observers are concerned that its trend level has permanently declined. The federal debt, meanwhile, is sure to keep rising, largely as a result of the out-of-control growth of entitlement programs. Elected officials are barely trying to restrain that growth, let alone succeeding.

Conservatives have every reason to be dismayed by this picture, and to seek to change it. It would be a mistake, however, to regard the fiscal-cliff deal that has just passed Congress as an important cause of these destructive trends. The deal actually makes federal budget policy slightly less disastrous.

The 2001 and 2003 tax cuts were set to expire at the end of 2012. Most Democrats campaigned for office saying that they would refuse to extend these tax cuts in their entirety, but would instead extend only those for people making less than $250,000 a year. Voters unwisely gave those Democrats control of the White House and Senate. After the last few weeks of wrangling, Republicans nonetheless got the Democrats to agree to extend the tax rates of the last decade for people making between $250,000 and $400,000 a year — indeed, to extend them indefinitely, with no scheduled expiration date.

The scheduled increase in tax rates put Republicans in a difficult position that gave rise to legitimate tactical disagreements. For the last two months it has often seemed that at any gathering of ten conservatives there would be twelve positions on what to do. But conservatives should not confuse disagreements over tactics with ones over principle.

Perhaps congressional Republicans, and especially Speaker of the House John Boehner and Senate Minority Leader Mitch McConnell, could have gotten a better deal. And it is perfectly reasonable for Republicans to vote against the bill as a way of registering their justified unhappiness with the direction of fiscal policy. A uniform Republican vote for the deal might have communicated the wrong message to the public.

And even if the Republicans couldn’t have gotten a deal that held taxes down any further, that wouldn’t mean they made the right choices in negotiating. The deal, for example, reinstates a sneaky phase-out of deductions for high earners that has the effect of raising effective marginal tax rates; it would have been better to just let the rates rise in a transparent manner. The deal includes a marriage penalty on high earners, too, for no reason that anyone has bothered to articulate. Republicans did not even try to keep payroll taxes from rising.

In our judgment, though, the deal was worth passing. It will result in less economic damage than either doing nothing (and thus letting all the tax cuts expire) or adopting Obama’s initial position would have. It will also give the federal government less revenue to spend than either of those alternatives. Conservatives who judge these matters differently should make their case without suggesting, falsely, that taxes would have stayed down if only McConnell, Boehner, et al. had not “caved.” Republicans who supported the deal, meanwhile, should not oversell it. Political parties and movements sometimes have to limit the damage that a different course of action would entail; they cannot make “limit the damage” their slogan and battle cry.


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