Usually, Keith Hennessey’s blog is terrific. Hennessey directed the National Economics Council in the later years of George W. Bush’s presidency, and that, plus his long experience on the Hill, gives his writing a procedural realism that’s very rare in political commentary. But he’s published two recent analyses of the debt ceiling that merit a response, and some skepticism. The first, an analysis of the 1997 budget deal, omits information that leads to the precise opposite conclusion that Hennessey draws. The second, an argument that the $4 trillion deal the White House offered Speaker John Boehner is well to the left of the Simpson-Bowles proposal, is factually untrue.
Let’s start with the 1997 Balanced Budget Act, which Hennessey, as a staffer for then-Sen. Trent Lott, helped negotiate. As he writes, the deal contained hundreds of billions of dollars in spending cuts, but no tax increases. In fact, it included tax cuts. “As you try to understand why a grand bargain is not happening in 2011,” Hennessey writes, “please consider the successful bipartisan grand bargain of 1997. Republican Leaders are now insisting only that taxes not go up, while President Obama is to the left of where President Clinton was when he successfully negotiated a bipartisan agreement.”
But you can’t judge economic policy without an idea of the economy it’s responding to, and Hennessey doesn’t say a word about the economic and policy context for these deals.
Clinton’s 1993 deficit reduction package raised taxes substantially. By 1997, taxes were above 19 percent of GDP — and rising. Though the 1997 deal included some very modest tax cuts, taxes passed 20 percent of GDP in 2000. Meanwhile, the economy was booming and middle-class wages were rising. That meant there was less need for further increases in spending. So Clinton cut spending and ratcheted back some of his earlier tax increases.
This moment is not that moment. Twelve years of tax cuts and a devastating financial crisis have driven taxes below 15 percent of GDP — a 50-year low. Wages have been stagnant or dropping for more than a decade and unemployment is above 9 percent, so there’s a significant need for social spending. Hennessey is taking fiscal policy passed because an economic boom and large tax increases pushed revenues to a historic high and left the need for further spending low and using it to judge policy being proposed during a period in which large tax cuts and a deep recession have pushed revenue to a historic low and economic pain is holding the need for spending high.
The addition of that contextual data gives you a clearer picture of the situation: Tax cuts tend to follow tax increases, and vice versa. In the 1980s, Ronald Reagan followed his large tax cuts with a series of smaller, but still significant, tax increases. In the 1990s, Bill Clinton followed his large tax increases with a set of modest tax cuts. And today, Republicans want to follow large tax cuts with ... more tax cuts.
That’s what has changed. And, notably, there were Democratic votes for the Reagan, Clinton and Bush tax cuts, because Democrats believe that sometimes taxes should go down and sometimes they should go up, even if they often disagree about when those times are or by how much. At the moment, it appears that the Republican Party’s position is that taxes should only go down. That puts Republicans far to the right of our economic history, and most economists. It doesn’t put Obama to the right of Clinton on the tax issue, as the tax increases Obama has proposed would hold revenues far below where Clinton put them. So if total taxes are your measure, Clinton is well to the left of Obama. And remember that that’s an active choice: Obama is proposing to make most of the Bush tax cuts permanent, which is, compared with current law, a far greater tax cut than anything Clinton ever proposed or enacted.
Hennessey’s assessment of Simpson-Bowles is even more puzzling. As I’ve noted before, Simpson-Bowles raised about $2 trillion in new revenues and cut defense spending by about $800 billion. The plan Obama proposed to Boehner raises half as much revenue and, from what I’m told, includes about half as much in defense cuts. It’s hard to see how that qualifies as “to the left” of Simpson-Bowles.
To make his case, Hennessey lists a number of very specific recommendations in the Simpson-Bowles report that, he says, weren’t included in the president’s offer to Boehner. It’s hard to know what to say about this because the president’s offer to Boehner never got to the level of detail that’s in the Simpson-Bowles report. For instance: Hennessey says the report created a tax reform process that could, in theory, lower rates while also raising the total amount of collected revenue. Obama’s offer to Boehner was to ... create a tax reform process in which Congress could decide how to change the tax code. They didn’t discuss the specific rates that would emerge on the other side. But then, Simpson-Bowles didn’t either: they just provided examples of possible outcomes.
Hennessey also names some very specific health-care recommendations that the Simpson-Bowles proposal included. Some could be called “right,” like malpractice reform, and some, like a global budget for health-care spending that relied on an expansion of the Independent Payment Advisory Board’s authority, could be called “left.” And either way, the budget deal didn’t get to anywhere near that level of specificity because the Republicans pulled back from it in response to its sub-Simpson-Bowles level of revenues.
I think there’s an understandable desire among some on the right to argue that there is nothing in the Republican Party’s negotiating posture that is abnormal, or inflexible, or an impediment to a bipartisan deal. But look again at Hennessey’s evidence: When tax rates are historically high and there’s reason to believe a policy pairing tax cuts and spending cuts to be fiscally responsible, Democrats will pass it. So far, we have not seen the same flexibility from Republicans when tax rates are historically low, and there’s reason to believe revenues should rise. Similarly, the Simpson-Bowles plan was, at least theoretically, a bipartisan document, and it had more in new revenues and defense cuts than what the president has proposed, less in domestic discretionary cuts, and because the GOP refused to continue negotiating a deal that included some revenues, we don’t know how far the administration would have gone on health and Social Security.
Perhaps Republicans can argue that they are right to be so inflexible. But that does not change the fact that they have been inflexible, and compared with the baselines set by Democrats in the 1990s or the Simpson-Bowles commission last year, Democrats have not been.