Conservatives in Congress have never, ever been good at knowing when and how to declare victory and move on. In the debt limit/budget battle, they have missed several chances to bank at least a slight public relations win while also notching improvements in public policy. Now Barack Obama has given them another chance to do so, but again they unwisely seem to be making the perfect the enemy of the good.
The chance lies in Obama's embrace of the "Gang of Six" plan. The answer is not to adopt the plan, with all its strengths and flaws, but to quickly counter with a scaled-down version of it that could be passed before August 2.
In embracing the Gang's deal, Obama has made a major concession. For years he has wanted to repeal the Bush tax-rate cuts, thus raising marginal rates to a high of at least 39.6 percent. Yet by endorsing the Gang's plan, Obama has said he can accept a top rate actually lower than today's 35 percent -- indeed, a top rate somewhere between 23 and 29 percent. This is an opportunity conservatives would be incredibly foolish not to grab. It also would be a tremendously helpful step to accept the Gang's immediate, permanent repeal of the Alternative Minimum Tax. Sure, Congress regularly "fixes" the AMT every year anyway, but as long as the AMT remains on the books, the "baseline" for future budgets is higher than it otherwise would be, causing all sorts of mischief. It would be good policy and good politics to grab this chance for permanent repeal while it's available.
The Gang also proposes dropping the top rate for corporate income taxes to somewhere between 23 percent and 29 percent, matching the new top individual rate. While this doesn't go nearly as far as I would like, it still would be a good start in the direction of making American businesses more competitive in the world marketplace.
To pay for all of this, Obama has also given approval for $500 billion in immediate deficit savings, along with a shift to a "chained CPI" (a more accurate measure of inflation), government-wide. These items should be accepted, and could quickly be enacted because they aren't complicated. (Other details in the Gang's plan, such as the budget "caps" through 2015, should be accepted in principle immediately as well, but they would take longer to actually enact legislatively.)
Obama and the Gang also want unspecified closures of "loopholes" and elimination of "tax expenditures," presumably including Obama's prized elimination of breaks for corporate jets. Fine. Accept some of them. Indeed, accept as many of them as would make reasonable sense from a policy standpoint (for example, ending ethanol subsidies) if Congress were starting from scratch.
Conservatives understand that not all tax cuts or tax hikes -- indeed, not all taxes of whatever sort -- have the same effects on the economy. Despite sounding Orwellian, the truth is that some taxes are, well, "more equal than others." A one-time tax "rebate," for instance, will not have anywhere near as beneficial an effect as a marginal rate cut of the same static value. On the flip side, closing a special-interest tax break may just shift productive behavior somewhere else rather than actually deter productive activity -- because it doesn't change broad-based incentives for productive behavior.
The upshot of all this is that some of Obama's proposed tax hikes won't hurt the economy as much as the tax-rate reductions will help it. Conservatives therefore shouldn't get hung up on whether all the tax changes are "revenue neutral." The key thing is to oppose any of Obama's proposed tax hikes that would truly depress the economy. In other words, Republicans ought to adjudge the proposed hikes purely on the basis of their economic impact, not on their budgetary effects, as "scored" by static accounting. A scaled-down package of immediate spending cuts and individual and corporate tax rate reductions is worth a little bit of "give" on tax subsidies.
What conservatives should not accept are any Gang of Six plans to phase out charitable deductions or the like for high-income taxpayers. Those are the sorts of tax hikes that do the same thing, in effect, as raising marginal rates, and thus deter productive economic behavior.
If some of the Obama tax hikes are rejected, of course, the numbers won't work for Democrats unless some of the Gang's proposed tax cuts also are jettisoned. Again, fine. Nothing says that the 23-29 percent top rate for both individual and corporate taxes is sacrosanct. Thirty percent, or 31, would still provide a dynamic boost for the economy -- and would have the added benefit, as noted before, of completely eliminating the chances for a reversion to much higher rates that are otherwise due to occur when the Bush tax cuts expire at year's end.
In short, Republicans ought to accept not the Gang's plan, which would be like walking a gangplank into tax-infested waters, but instead should counter-propose a scaled-down version of the Gang's plan and dare Obama to contradict his own public statements by rejecting it. After all, Obama would be getting rid of the corporate jet write-off, and a number of other of his most PR-friendly complaints, and he would be asked to accept nothing that he hasn't already publicly endorsed. He, not Republicans, would be in a political box of his own making.
Republicans, meanwhile, would appear in public to be the constructive problem-solvers, while pocketing all sorts of policy changes (lower rates, some immediate spending reductions and some long-term savings) that they long have advocated. Furthermore, they could note -- if the deal were enacted -- that the only reason Obama and the Democrats came to the table at all, in contradistinction to pushing Obama's original spendthrift budget, was because Republicans stood up for taxpayers and responsible budgeting.
In sum, Republicans could declare victory and the moral high ground all at the same time. All they would need to give up in return is a slavish insistence on green-eyeshade, dollar-for-dollar equivalence between all facets of the plan. What matters isn't really that the hike in the debt ceiling be no bigger than the overall budgetary savings, but that the Republicans for the first time ever be able to show some demonstrable savings from a debt ceiling fight, along with supply-side tax relief that bolsters the economy. To do all that while at the same time being the "adults" who avoided federal defaults would serve both their politics and the public interest.
Conservatives will never be able to enact all the policies we know are good until Barack Obama is gone from the presidency. But anything that moves the policy ball in the right direction without giving Obama a political advantage is devoutly to be desired. A scaled-down Gang-plan achieves this -- without risking the all-or-nothing brinksmanship that, by definition, could end up with conservatives holding no ground at all.
Victory, for the sake of the American public and the American future, stares conservatives in the face, but it can only be achieved in stages. This is the first major stage. They should seize the ground that's available.
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