The corollary is that progressives should be unafraid to draw their own red lines. If you doubt that this is a good idea, just look at how effective Norquist has been. Outside pressure from both sides is essential for a balanced deal.
Start by insisting that Social Security and any increase in the retirement age be kept off the table. President Obama’s bargaining hand will be strengthened further if he can tell Republicans that there just aren’t Democratic votes for steep cuts in Medicaid and Medicare. The president’s room for maneuver expands still more if liberals refuse to look at cuts in programs unless Republicans are prepared to raise tax rates on the wealthy.
Already, there are signs that Republicans realize how much leverage the president has. If Congress doesn’t act, all the Bush tax cuts expire at the end of the year. At that point, the Senate’s Democratic majority has the power to block (or Obama can veto) any restoration of the upper-end Bush tax rates.
One indication that Republicans are aware they’re boxed in came from Rep. Tom Cole (R-Okla.), one of his party’s shrewdest political minds. He suggested that Republicans should take up the president’s invitation to extend the Bush tax cuts for the 98 percent of Americans who earn less than $250,000 a year. Yes, this would amount to throwing in the towel on those upper-bracket levies. But Cole knows that it won’t help the Republican brand if voters come to see the GOP’s one and only objective as protecting wealthier Americans from tax increases.
The next lesson is not about politics or PR. It’s about substance, and this is where the Washington establishment has to get serious. The simple fact is that it’s bunk to claim that “tax reform” alone can produce the revenue we need.
One of the great disservices of the Bowles-Simpson commission was that it fed the impression that tax reform could generate so much cash that it would permit a cut in tax rates.
Grant Erskine Bowles and Alan Simpson credit for good intentions — they were desperate to find a way to get Republicans on their commission to acknowledge the need for new revenue. It’s also worth remembering that their proposal assumed the expiration of the Bush tax cuts for those earning more than $250,000 a year. Nonetheless, their stress on tax reform with lower rates was more a political deal than wise policy. They sent us down the wrong path.
The only way tax reform might raise enough money to prevent a rate increase, let alone create an opportunity for rate cuts, is to reduce popular deductions (like the one on mortgage interest) so deeply that middle-class Americans would get a tax increase, too. And eliminating or sharply undercutting the deduction for state and local taxes is a bad idea. This only penalizes higher-tax states that try to solve their own social problems — for example, by providing health insurance to their low-income residents.
And all the schemes to eliminate tax expenditures to avoid rate increases have the effect of protecting just one group: Americans with very high incomes. That’s how the math works.
The right thing is to bring back Bill Clinton’s tax rates on the well-off and then have a broad tax reform discussion next year. A similar logic applies to health-care programs, as Jonathan Cohn suggested in the New Republic. Before making big cuts in Medicaid and Medicare, we need to see whether the reforms in the Affordable Care Act can contain medical inflation.
The fiscal cliff creates an enormous opportunity to end an era in which it was never, ever permissible to raise taxes. In the pre-Grover days, conservatives believed passionately in pay-as-you-go government. A tough stand by progressives will make it easier for conservatives to return to the path of fiscal responsibility.