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Off the Cliff

by Ramesh Ponnuru

Too many Republicans wanted us to take the plunge

For a few weeks around New Year’s Day, Washington, D.C., turned topsy-turvy. Well, topsy-turvier than usual. Conservative groups blasted a huge tax increase, the Congressional Budget Office estimated the size of a large tax cut, and they were all talking about the same bill. The Club for Growth’s president said he would hold congressmen’s votes for the bill against them — including the vote of a former president of the Club who is now a senator. Congressional Republicans refused to vote for spending cuts they favor. Some of this oddity was the result of the peculiar circumstances that gave rise to the month’s political debate, circumstances that will not soon be repeated. Some of it resulted from features of the contemporary conservative movement that will continue to limit its political effectiveness even after that debate has run its course.

In 2001 and 2003, President Bush, most congressional Republicans, and a few Democrats cut almost all income-tax rates, cut taxes on capital gains, dividends, and estates, and expanded the child tax credit. To get the tax cuts through Congress, Bush had to choose between shrinking their size and making them expire at the end of 2010. He chose the latter course, subsequently trying to make the tax cuts permanent or at least push back the expiration date. After taking the House in 2010, Republicans succeeded in getting President Obama to agree to push the date to the end of 2012.

Obama’s position was that the tax cuts on everyone making less than $250,000 a year should be made permanent, while the tax cuts on incomes above this level should expire. He also wanted taxes on estates, capital gains, and dividends to go partway back to their pre-Bush levels. It was estimated that these tax increases would increase federal revenue by $800 billion over ten years.

The basic fact that structured the political wrangling over taxes from November through early January was that failure to reach a deal acceptable to majorities of the House and the Senate as well as the president would result in a $4.2 trillion tax increase (measured, again, over ten years). So this was never going to be a normal budget negotiation, where Democrats would urge tax increases, Republicans would urge spending cuts, and the final result would be a mixture of the two reflecting the two sides’ relative political strength, negotiating skill, and media savvy. In this case, even if the parties were evenly matched in all three respects, the scheduled tax increase would have put Republicans at a disadvantage. Whatever Republicans did or did not do, taxes were going to go up.

Yet a remarkable number of conservatives attacked congressional Republican leaders — particularly Speaker of the House John Boehner and Senate minority leader Mitch McConnell — for “caving on taxes,” without acknowledging that the consequence of not caving would have been  even higher taxes. (News accounts, too, depicted Republicans as voting “for tax increases” when they were actually voting, in intent as well as effect, to restrain scheduled tax increases.) Or they faulted these Republicans for not getting spending concessions in return for the tax increases, ignoring the question of why Obama would make these concessions when the law already gave him tax increases larger than he had called for. Republicans would have had to give him something extra, such as a temporary extension of the debt limit, to get such concessions, and the same conservatives who complained about the alleged cave-in on taxes were so dead-set against doing so that they killed the idea.

Grover Norquist, the head of Americans for Tax Reform, had for years promoted a “taxpayer protection pledge” to get politicians to commit not to support tax increases. He wanted all of the Bush-era tax rates to be made permanent: that is, for the expiration dates to be lifted so that it would take an affirmative act of Congress signed by the president to cause those rates to rise. He did not, however, label congressmen who voted for proposals that fell short of his goal as violators of his pledge.

At one point during the debate, Boehner tried to get the House to vote for what he called “Plan B” (Plan A being productive talks with the president): a bill that would have limited increases in the income tax to people making more than $1 million a year. The theory was that this move would have increased Republicans’ leverage over the final deal. They would have shown their commitment to shielding the middle class from tax increases and their lack of fealty to millionaires, depriving the Democrats of their best talking points. The result, Republican leaders hoped, would be a deal that protected everyone making less than $600,000 or so from higher income taxes.

Boehner could not get the proposal through the House. Democrats in that chamber had no interest in increasing Republicans’ leverage. Many Republicans did not want to be seen as voting for tax increases, even if they were actually voting to slash scheduled tax increases. In private, some House Republicans acknowledged that by not voting for Plan B they were making it likely that taxes would end up higher than they would be if Boehner’s strategy succeeded — but suggested it would be preferable to let taxes rise more rather than have their “fingerprints” on smaller tax increases. They could let taxes rise without having to vote for anything, after all.

Boehner was forced to withdraw from the field at this point, and McConnell and Vice President Joe Biden reached a deal instead that allowed $600 billion of the tax increases to take effect. Income-tax rates rose on couples making more than $450,000 a year, taxes on investment rose too, and deductions were phased out for high earners. (It also allowed a payroll-tax cut passed under Obama to expire, an additional $95 billion tax increase.) Many conservatives bitterly attacked the deal, claiming that it included $41 of tax increases for every $1 of spending cuts. The figure was absurd. If letting scheduled tax increases go ahead counts as raising taxes, then letting scheduled spending cuts go ahead — and the deal kept in place $1.2 trillion of cuts that are scheduled to start this year as well — should count on the other side of the agreement, and the ratio is 1:2. If the sequester doesn’t count because it was already put into law, on the other hand, then none of the tax increases can be counted either, for the same reason.

Anger over this figure moved House Republicans to try to pass an amended version of the deal with spending cuts. The effort crashed on the same rocks as Plan B. House Democrats weren’t interested in pulling the deal to the right, and Republicans couldn’t pass an amended version of it without voting “for” higher taxes. Given a choice between a tax code with higher spending and the exact same tax code with lower spending, many congressional Republicans decided that they preferred the higher-spending alternative so long as they did not have to vote for anything that allowed taxes to rise. Like Plan B, the amended deal was never put to an actual vote because it was a sure failure. The House passed the unamended deal, mostly with Democratic votes.

Many conservatives reacted bitterly. Two editorialists, in a typical attack, wrote that Boehner and other Republicans had, “for reasons that aren’t entirely clear but are probably related to panic and a basic lack of principle[,] . . . abandoned decades of principle on taxes.” The deal had tax hikes but no spending cuts. “Nice job,” they added. At no point did these writers mention that the deal moderated the automatic tax increases that were already part of U.S. law, or that this fact may have had something to do with the decisions of Boehner and company. Naturally, they also neglected to cite any evidence that refusing to moderate a scheduled tax increase has ever been a conservative principle. Nor did they note that congressmen who believe in this alleged principle had made it impossible to limit the tax increases further or add spending cuts to the deal. Nice job?

Washington has already moved on to the next budget battle, over raising the debt limit. While the issues are different — there’s no automatic tax increase involved — some of the same patterns of thought and behavior that reduced conservatives’ ability to get their way at the start of 2013 could recur. Nobody in Congress, not even the most conservative legislator, has a plan to bring the deficit to zero immediately. All of them have budget policies that therefore require increasing debt. House Republicans might be able to tie an increase in the debt ceiling to spending cuts, and in that way get the Democrats to agree to those cuts. If 20 House Republicans refuse to vote to raise the debt ceiling under any circumstances, however, then they will not be able to pass any such package of spending cuts. The naysaying Republicans will then, it can safely be predicted, criticize Republican leaders for failing to drive the hard bargain that their own behavior will have made impossible.

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