What began primarily over a fight about taxes, how much and whether to sock it to the rich, is slowly becoming a test of President Obama’s willingness to tackle entitlements. This is firmer ground on which Republicans can fight.
The aversion to taxes for Republicans is rooted in both the practical and the ideological. The ideological rationale, like other pro-freedom policies, is that we should maximize resources in the private sector, which means more economic growth, more opportunity and more personal freedom. The practical rationale is that if you raise taxes even to pay down the debt, the liberals will just spend it, requiring more taxes.
The ideological rational for lower taxes has been converted by dogmatic conservatives into the view that taxes should never rise (presumably even as a result of a more efficiently and fairer tax code). As all ideological positions do, this one runs headlong into reality. The president and Senate won’t abide by a full extension of the Bush tax cuts so, therefore, a compromise must be struck. Republicans and now Democrats are beginning to negotiate in public. This is devolving into nothing more than a split-the-baby deal ($1 trillion or $1.2 trillion?). On this the fate of the republic will not rest.
We now come to the practical rationale against tax hikes. Republicans and certainly the voters at large have a second and possibly more urgent concern: The size of the debt that threatens a fiscal crisis (when we can no longer sell our debt for low interest rates) and to swallow all other government activity. Moreover, as we have learned from a raft of economic research, excessive debt acts as a drag on growth. Keeping taxes low (the so-called “starve the beast” theory) has flopped as government has continued to expand at an astronomical rate. So the practical reason for keeping taxes low — to restrain the size of government and avoid fiscal calamity — is weaker than it has ever been. This is especially the case if the president can be persuaded to make meaningful spending reductions. The beast can’t be starved, but perhaps bariatric surgery can be scheduled.
President Obama, to a large degree, has been gambling that Republicans would nix any deal on taxes, send us over the cliff and force the sequestration cuts and tax hikes. He then could reluctantly declare that at least we’d made progress on the debt. This would be false, of course, since the sequestration cuts are small ($1.2 trillion) relative to the size of the debt ($16 trillion) and do not get at the root of the problem (entitlements). But it would be a handy excuse for the president to protect entitlements from real reform.
Now, however, that the GOP is willing to deal on taxes, Obama is being cornered on spending. It is significant that in every public utterance House Speaker John Boehner (R-Ohio) pressures the president on spending cuts.
We therefore have arrived at the point where Republicans can no longer be counted on to nix a deal over taxes; it is Obama who must decide whether to cut entitlements. Considering that the president won reelection and the Senate Democrats will increase their majority, this is a remarkable turn of events.
In short, by both recognizing reality on taxes and seeking to do directly (cut spending) what it tried unsuccessfully to do indirectly (via revenue restraint) for years, the GOP has a shot at real entitlement reform. I remain unconvinced that the president has the nerve or desire to do so, for his interests are much more immediate (soak the rich) and partisan (blame the GOP). But, against his will, maybe he can be forced to do something long-ranging and important. We’ll see soon enough.