The president made a rather insincere offer to Republicans: corporate tax reform and some more stimulus spending. If Republicans had made an offer to lower corporate tax rates, hand out some corporate welfare and do nothing for small business they would have been skewered. So instead, they turned the populist tables on the president.
Aside from the tempting politics, Republicans were encouraged to reject the deal for sound policy reasons. To begin with, additional spending isn’t going to jump-start the economy with any more effectiveness than the previous stimulus efforts. And if the spending goes to more “green jobs” and other corporate giveaways, the spending harms competitors who don’t get the handouts. On the corporate side, there is the concern that there will be gamesmanship when the top individual and corporate rates have such a large gap.
That said, it would be a mistake for Republicans not to respond with a bargain of their own. This president isn’t going to do anything on entitlements so let’s put that aside for now.
One deal might be corporate and individual tax reform (both revenue neutral and designed to maintain the progressivity of the individual tax code) plus a serious domestic energy-development bill. Keynesians believe that the latter would create jobs. And by including individual tax reform in a package Republicans can, if nothing else, simplify the lives of millions of taxpayers. Simplification and getting the government out of the business of favoring well-connected industries are worthy goals. (Republicans also think they’ll get some growth out of a flatter code.)
If the president can’t move forward on domestic energy development because of his lefty base, then why not spend some of the money on national security that even Defense Secretary Chuck Hagel admits is being devastated by sequester cuts? There would be some high-paying jobs with that (union jobs in many cases) and, more important, some needed support for our armed services. (The GOP could also agree to a Pentagon waste-fraud-abuse audit. I would recommend Michele Flournoy to head it.)
Or why not forget tax reform altogether and work on a domestic energy bill? That will both create jobs and tax revenue, helping our budget situation (which is already improving due to the Budget Control Act).
There are deals to be had, I think, once we take out of the “grand bargain” the two sticking points — taxes and entitlement reform. Don’t laugh; I know those were the essence of the grand bargaining up until now. But that didn’t work, so it may be time for some good old horse trading on other topics.
If the two sides really want to spur jobs, they might look at over-regulation, including the too-big-to-fail Dodd-Frank morass and even breaking up big banks. Yes, yes — let’s not get ahead of ourselves. For now, the bargaining should aim for solid things that don’t require either side to swallow a poison pill.