How Much Credibility Does the GOP Have on Taxes?

How you know the White House is not taking the bipartisan deficit-reduction talks seriously: Joe Biden is in charge. I’ve made that observation before, and people think it’s a quip, but I mean it. The vice president is a fundamentally unserious figure, especially on fiscal issues. Barack Obama is a lot of things, many of them regrettable, but he is not a buffoon. This is a crisis that requires direct presidential leadership and top-level congressional leadership. It requires Barack Obama, John Boehner, and Harry Reid locked in a room. A small, uncomfortable room would be best. No pizza.

The Biden effort is disintegrating. Eric Cantor walked on the talks today. He says he wants the president to step in and “resolve” the question of tax increases. There are two ways to read that word “resolve”: One is: Obama should step in and hand the Republicans a victory by taking tax increases off the table. The other is: Obama should step in and hand Democrats a defeat by volunteering to take all the flak from the tax increases that almost certainly are going to be part of any bipartisan deficit deal.

Here’s Cantor:

“Each each side came into these talks with certain orders, and as it stands the Democrats continue to insist that any deal must include tax increases,” Cantor said in a statement. “There is not support in the House for a tax increase, and I don’t believe now is the time to raise taxes in light of our current economic situation. Regardless of the progress that has been made, the tax issue must be resolved before discussions can continue.”

“Given this impasse, I will not be participating in today’s meeting, and I believe it is time for the president to speak clearly and resolve the tax issue. Once resolved, we have a blueprint to move forward to trillions of spending cuts and binding mechanisms to change the way things are done around here.”

And that is the heart of the thing: If Cantor & Co. can in fact achieve “trillions” in cuts — tens of trillions, really — then they have a credible case for taking tax increases off the table.

So, how’s that looking?

The most ambitious deficit-reduction plan so far has been the Ryan Roadmap, which the House passed and then sent to its death in the Senate. I like the Roadmap, and I would be surprised to see a significantly more aggressive plan gain any traction in Congress. But even under the Roadmap, spending as a share of GDP would continue to rise through 2037 and would stay above 19 percent of GDP until 2063. Publicly held debt would hit 100 percent of GDP in 2043, which could very well prove catastrophic. (Tables here.) But while spending continues to grow as a share of GDP under the Roadmap, tax revenue is projected never to exceed 19 percent of GDP. That is by design, as Mr. Ryan’s team has made clear:

Eventually, as economic activity picks up, revenues in the Roadmap plan rise back up above 18 percent of GDP, finally reaching the intended maximum amount of 19 percent of GDP in 2029.

Intended maximum. Which is to say, the most aggressive deficit-reduction plan yet produced by Republicans by design holds tax revenues below projected spending. For decades to come, the deficit-reduction plan is a plan for deficits. The turnaround year of 2037 is a long way’s away. That means that even if the Roadmap were enacted, further deficit-reduction measures would be needed, and needed sorely.

So, the question for Eric Cantor is: What evidence do you have that you can get something even more aggressive than the Roadmap through Congress and past Barack Obama? My guess is that his case sounds a lot like one hand clapping. And if my guess is correct, then the Republicans’ anti-tax stance is just that: a stance, another word for which is a posture.

So, fine, posture, do your political calculating, whatever. Meanwhile, children being born today will be cursing our names for the burdens we have left them.

Political posturing is a question for Eric Cantor and Barack Obama. The question for the rest of us is: Where lies the consensus? I don’t mean that in a touchy-feely sense. I mean: What balance of taxation and spending are we prepared to accept? (And “we” describes an electorate that elected Barack Obama after twice electing George W. Bush, that has made both Newt Gingrich and Nancy Pelosi speaker of the House. That “we.” That inexplicable, maddening “we.”)

Federal spending in 2012 is expected to hit 23.6 percent of GDP, but tax revenue is only going to hit 16.6 percent. That’s bad. (Real bad.) But these are poison years. Let’s revisit happier days: From 1980–2000, federal outlays averaged 21.3 percent of GDP, taxes averaged 18.5 percent, deficits 2.8 percent. So, if there’s a post-recession return to historical norms, one or both of those factors still has to move by total of 2.8 percent of GDP to balance the budget. That would mean cutting about $400 billion from the 2012 budget or adding $400 billion in taxes, or a bit of both. (Assuming we get back to historical norms is a big assumption.)

Is there a consensus for cutting spending to 18.5 percent, the level we might expect taxes to hit? That’s a big drop from the forecast level of 2012 spending, about a 22 percent cut. The last time federal spending was only 18.5 percent of GDP was . . . 1999, not exactly the Dark Ages or a time of notable national austerity. So, it’s not impossible to imagine a consensus for 18.5 percent spending. On the flipside: Is there a consensus for taxation at 21 percent? That’s pretty high — higher than it has ever been, in fact, even during World War II, when taxes topped out at 20.9 percent of GDP in 1944. The last time it’s been close — 20.6 percent — was in . . . 2000, not exactly the Dark Ages or a time of notable national austerity. Those variations show that, Democratic protestations aside, currently high spending is the larger abnormality, and so suggest that spending cuts should make up the bulk of the deficit-reduction plan.

But: How much?

I don’t want taxes or spending at 21.3 percent of GDP. I don’t want them at 18.5 percent, for that matter. I might go for spending at 14.2 percent and taxes at 16.1 percent as a good start, which would take us to the savage Darwinian conditions of . . . 1951, not exactly the Dark Ages or a time of notable national austerity. As I hear it, 1951 was a pretty good year. From 1950 to 1955, our average real GDP growth exceeded that magic 5 percent threshold that Tim Pawlenty and Larry Kudlow and the optimists are talking about, and that includes a little recession in 1954. (Granted, there are excellent reasons to believe that the postwar boom is not easily replicable. Here’s one. Here’s another. And one more. Not a unicorn in the bunch.)

But here’s the thing: If you want spend 21 percent, you really need to tax 21 percent. If you want to tax only 18.5 percent, you can only spend 18.5 percent. So far, Republicans have been pretty insistent about taxes, and not without reason (this probably is not the optimum moment to announce a large tax increase). But if you are not willing to move one variable, then you have to show yourself willing and able to move the other variable far enough to bring things into balance. The Republicans have been moving in the right direction, but they aren’t quite there. You want to take taxes off the table, then show me you can get the job done with cuts alone — not on paper, but in Congress.

Why haven’t I mentioned the Democrats? They control the Senate and the White House, holding a far stronger hand than do the Republicans. The reason is that the Democrats are a lost cause. Their commitment to maintaining the current path of entitlement spending and public-sector expansion will ensure national bankruptcy at virtually any level of taxation. (Don’t believe me? Have a gander at what a $30 trillion deficit looks like.) Removing Democrats from power probably is a precondition for averting a national fiscal meltdown. A necessary condition, but not a sufficient one.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialismpublished by Regnery. You can buy an autographed copy through National Review Online here.


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