The Economist
Lexington
Bargaining and blackmail
How the Republicans’ intransigence on tax increases might rebound against them
IT IS tempting to resort to cliché: a Martian parachuted into Washington, DC, this summer would be utterly bemused by the antics of its political class. But you do not need to be an alien. Even veteran observers of the nation’s capital are scratching their heads. On the face of it, the most powerful country on the planet, having only just recovered from a self-inflicted financial calamity of epic proportions, is marching towards another self-inflicted financial calamity of epic proportions. Unless Democrats and Republicans close their differences on taxes and spending, and Congress votes to increase the federal debt ceiling, the United States may default on its debt, an eventuality with incalculable consequences for the world economy as well as America’s.
The very direness of this possibility has produced a certain insouciance. The smart money bets that it will not happen. Investors are still buying America’s debt, no doubt because they assume that, for all the theatre, its politicians are not mad enough to jeopardise the full faith and credit of the United States. When last week the debt negotiations between the Republicans and Joe Biden, the vice-president, collapsed, the market took even that in its stride. Now that Barack Obama has taken charge, it is surely only a matter of time—the Treasury’s deadline for averting a default is August 2nd—until the inevitable compromise emerges.
That guess is probably correct. If Washington is not good at cutting deals, what is it good for? Why, Mr Obama and John Boehner, the speaker of the House of Representatives, have at last even played golf together. And Mr Boehner, a dealmaker par excellence, has said repeatedly that, yes, the debt ceiling must be raised, albeit on Republican terms. Nonetheless, it would be wrong to dismiss the fight over how to do it as mere posturing. Many of the newer Republican members of the House are zealots sent there by the tea-party movement in November’s mid-term elections. For them this is much bigger than politics as usual.
This group, remember, sees itself as a revolutionary vanguard. They have come to Washington to resume Ronald Reagan’s mission of rolling back the state, the great cause which they believe to have been betrayed by the tax increases of the first President Bush and the big spending of the second. Now they are sworn to restore the true faith and its central creed: never raise taxes.
If the talks fail, it will be because this breed of Republicans has elevated a preference into a fetish. Even Reagan, a supply-sider persuaded by Arthur Laffer’s pretty curves that his tax cuts would pay for themselves, raised taxes when they did not. Today’s Republicans show no such flexibility. After the Democrats insisted in the Biden talks that a deal would have to include more tax revenue, $400 billion of it, and not just less spending, Eric Cantor, the House majority leader, stalked out. Read our lips, is the Republican mantra: no new taxes, period—perhaps not even just the removal of tax breaks (such as those for oil and gas firms) and exemptions on which the Democrats are now focusing.
To non-partisans, the idea of taming the deficit by spending cuts alone flies against both common sense and arithmetic. America’s tax-take is not high either by international or its own historical standards. One commission after another has advocated mixing spending reductions and revenue increases. Without the latter, entitlement programmes will have to be eviscerated, even if, as now looks possible, the defence budget takes a share of the pain. But the Republicans will not budge from their dogma.
Where does this intransigence spring from? Part may be tactical. If a default is really possible, won’t the man in the Oval Office have to blink first—and isn’t it just irresistible to inflict this humiliation on him? Part is pandering: a Gallup poll in May found that 70% of Republican voters do not want Congress to raise the debt ceiling at all—and almost every Republican in Congress has signed the “pledge” of Grover Norquist’s ferocious advocacy group, Americans for Tax Reform, to oppose all tax increases.
Starve that beast
But for a large contingent of Republicans on Capitol Hill the fact is that a blanket opposition to tax increases has become a matter of deep conviction. Since the election of Mr Obama, they believe not only that government has expanded beyond the consent of the governed but also that cutting taxes is the only reliable way to roll it back. If taxes are raised to reduce the deficit, won’t they merely fuel more spending in the future? After their mid-term election victory, and the failure of Mr Obama’s stimulus spending to deliver the expected returns, Republicans feel they are on a roll—and that the debt-ceiling deadline gives them just the lever they need to inaugurate an historic change of course.
Or so it seems. But they should take care. Imagine they got their way entirely, forcing Mr Obama and his party to accept deep cuts in spending without raising taxes at all. Voters like low taxes. But since they also like all the state help that high ones buy, they may not be quite as grateful as the Republicans expect. For example, the blue-collar whites who make up 40% of the electorate are fed up with Mr Obama, but also wary of sudden change and attached to entitlements such as Medicare and Social Security (pensions). As Henry Olsen of the American Enterprise Institute notes, this group has handed power to the Republicans before, only to defect when the party threatened the welfare state.
In politics, moreover, the “how” can matter. Remember the Republicans’ rage when the Democrats, then in charge of both houses, used every last trick to “ram” the controversial Affordable Health Care Act through Congress? Now the Republicans are using the spectre of a debt default to impose their own radical vision of how to reform America, before having won control of the Senate, the White House or even, many will say, the argument. That strikes some Americans as nothing less than blackmail.
http://www.economist.com/node/18897489
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