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The GOP's tax-cut dilemma

By Ezra Klein

taxcutscbpp.jpg

Josh Barro thinks the White House's proposal to split the tax cuts for the rich and the tax cuts for income under $250,000 is "a trap" that will lead to the expiration of the cuts for the rich. He's probably right about that. But he also thinks it gives "Republicans a chance to reclaim their position as the party of fiscal prudence." How? By contradicting themselves.

Republicans should say that we unfortunately can’t afford to commit to all the Bush tax cuts in perpetuity, and that the more responsible course is a wait-and-see approach: pushing them all out to 2012 or 2013 and then addressing the fiscal gap when the economy is stronger.

That might work if Republicans hadn't spent the past year saying that all of the tax cuts should be extended, that tax cuts don't need to be offset, and that tax cuts pay for themselves. But given that Republicans have spent the past year arguing all those things, they've not got much room to maneuver on this one. And nor would they want it: If Republicans admit that you need to worry about the deficit when you cut taxes, that makes it a lot harder to cut taxes in the future. And cutting taxes in the future is pretty much what the GOP is there to do, deficit be damned.

Graph credit: CBPP.

By Ezra Klein  | November 1, 2010; 11:33 AM ET
Categories:  Taxes  
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Comments

I was flipping around channels this weekend and was unfortunate enough to land on CNN for a few minutes. I saw a brief exchange between Ali Velshi & Stephen Moore talking about the Tea Party and how the Republicans of this year were focusing on reducing the deficits and government spending. Yes, yes, they agreed with one another, the Republicans are the party of fiscal discipline - as your figure above shows so eloquently. There was no follow-up question such as "Name one thing the Republicans have said they will cut in order to reduce spending". Or "How is it that extending the Bush tax cuts makes them the party of fiscal discipline?". Because, you see, the Republicans ARE the Party of Fiscal Discipline (TM) and such questions need not be asked. Besides, when Republicans run the show, deficits are actually good. GOOOD. It's only when Democrats do it that it's bad. One of my earliest political memories comes from when I was in middle school and George HW Bush was running for election. None other than Stephen Moore was on the TeeVee explaining that there wasn't actually a government deficit in those days because the government didn't account for all those roads and bridges as assets the way a corporation would. So, you see, there's not actually a deficit at all! Bingo! But when the Democrats take control. Hoo Boy! Now that's a deficit.

Posted by: klautsack | November 1, 2010 11:46 AM | Report abuse

Since we saw with Ezra's laughable post this morning that he likes to play the 'what-if' game, what about this what-if....Ezra, run a scenario where the Bush tax cuts are held where they are, but GDP rises 12% per year.

Probably wouldn't have to 'pay for' the tax cut extentsions, would we?

Once again, the fallacies of progressive-economic theory exposed...they pretend economic activity will be unaffected regardless of what the tax rates are, therefore tax cuts must be "paid for".

Posted by: dbw1 | November 1, 2010 12:03 PM | Report abuse

dbw1-

Do you honestly think GDP is going to grow by 12% per year? Eight years of 3-6 % growth did not pay for Bush's tax cuts. The same way Reagan's tax cuts were never paid for.

Posted by: klautsack | November 1, 2010 12:07 PM | Report abuse

Ezra, I'm very disappointed that the picture at the top of this post was not this one: http://bit.ly/brWCPE

And dbw1, if you have a secret plan to get 12% GDP growth, I would love to see it. If that plan is the Bush tax cuts, well, we didn't exactly see 12% growth in the aughts, so I'm gonna have to ask for more ideas.

Posted by: yawgmoth6139 | November 1, 2010 12:09 PM | Report abuse

I used to respect GOP leaders as men of principle, character and intelligence. No more.

Why? Just one example: House Minority Leader Boehner and scores of other Contract of America signers broke their word to adhere to term limits. Where I come from, a few miles south of Boehner's home in Ohio, a man's word is sacred. Not to Boehner and many others in the GOP.

Another of many examples: advocating the extension of the Bush tax cuts without paying for them. The GOP and all Americans should have learned from that great GOP leader, Ronald Reagan: Tax cuts without the spending cuts to pay for them send the annual Federal deficit and the cumulative Federal debt searing. These repeated experiences have been very expensive tuition. The lesson should have been learned. We should be thinking smarter and acting smarter. Tax cuts must be paid for.

Posted by: jimb | November 1, 2010 12:15 PM | Report abuse

You've got it, dbw1! And what if on July 4, 2011 the White House receives a card from China saying, "America, for your birthday this year we have decided to forgive all of your debt that we currently hold. XXOX, China."? I mean, holy crap! Then we could cut taxes all day!

Posted by: MosBen | November 1, 2010 12:39 PM | Report abuse

klautsack, yawgmoth6139, MosBen:

That was exactly the point. GDP can't grow 12% per year. And if you had read the earlier column by Ezra today that sought to, once again, exempt government spending from our deficit problem by playing fantasyland 'what-if' games, you would have understood my tongue-in-cheek post.

But progressive-economic policy depends on dreamy scenarios where economic activity grows unabated regardless of how high they raise the tax rates, so I just thought I would play along with other similar nonsensical assumptions....

Posted by: dbw1 | November 1, 2010 1:52 PM | Report abuse

dbw1-

Well, I for one have never claimed to be either intelligent or well-informed. So you can't blame me for making a stupid comment. It's all I have time for while my SAS programs are running.

Posted by: klautsack | November 1, 2010 2:14 PM | Report abuse

Odd for you to say "because Republicans argued X they can not argue not X." Consitency in messaging and public policy positions seems pretty irrelevant to election outcomes in our current political system, don't you think?

Posted by: Levijohn | November 1, 2010 4:03 PM | Report abuse

Tax cuts don't "cost". Spending COSTS.

How many times have you blamed your employer for this month's financial problems by telling him that *he's* the problem and it's not your spending habits?

Posted by: WrongfulDeath | November 1, 2010 6:29 PM | Report abuse

Why is this a dilemma for Republicans? They don't care about deficits.

For Democrats, yes, this is a dilemma. But Republicans, they just run up deficits and then blame them on Democrats. You know, if only we'd cut welfare, we'd balance the budget.

Seriously, what's the dilemma for a Republican here?

Posted by: theorajones1 | November 1, 2010 7:35 PM | Report abuse

"Tax cuts don't "cost". Spending COSTS."

Well, no. If you keep spending the same money buy ask your boss for fewer hours, that's going to cost.

Which is why it was spectacularly reckless for Republicans to cut taxes while dramatically _increasing_ spending on Medicare part D and spending a fortune in Iraq and Afghanistan. And holding all other spending basically the same.

No matter which way you cut it, Republicans' fiscal habits are like drunken sailors with credit cards.

Posted by: theorajones1 | November 1, 2010 7:40 PM | Report abuse

What is the lengths of your jeans for male/female? I have the waist size but what is the length?

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Posted by: adfjsfsfg | November 1, 2010 10:16 PM | Report abuse

The real Republican dilemma is that they are going to give Obama what he wouldn't dare ask for, complete elimination of the bush tax cuts rather than the elimination of only taxes on incomes over $250,000. So he gets nearly half a trillion in income that will reduce the deficit by that half a billion because there will be no particular increase in ANY programs. Should the republicans make any significant cuts in Federal expenditures, the deficit falls even further. Even the very slow growth we currently have improves the budget picture even more. And Obama gets the credit and the Republicans get the blame from the right for letting the tax cuts expire.

For two years, if the Republicans have the House, NOTHING gets done, and not one budget gets passed in the calender year it was due, So the R's get stuck passing Obama Budgets piecemeal but with no significant changes. Obama goes into 2012 with a trillion dollar reduction in deficits over the biennium.

Obama looks more successful than he really was, but the Right is furious at its members for not getting tax cuts passed. The Tea Party eats the lunches of all the freshmen republicans, and many of the veterans for not doing more for the T-s, and the Democrats get to face 75 Sharon Angles while riding Obama's coat tails.

And the Republican Party doesn't budge on its party platform a millimeter.

THAT is a Republican Dilemma.

Posted by: ceflynline | November 1, 2010 10:29 PM | Report abuse

The fact that Republicans can't even admit that the tax cuts will hurt the deficit shows how utterly clueless they are with financial issues

I mean, they keep repeating this, "It is our money" reasoning which makes absolutely no sense as it STILL hurts the deficit tremendously.

Posted by: Bious | November 3, 2010 1:39 PM | Report abuse

Unless Republicans are willing to support cutting military spending, they have no right to call themselves "fiscally responsible" or even "fiscal conservatives" for that matter. Our military is currently outspending the next 21 nations COMBINED on military spending. That's over 720 Billion per year, with "contingencies!"

Remember back in the late '90's when the budget was balanced? Back then, we were spending less then 300 Billion per year on the military. We've had over a 400 Billion a year increase in our military spending since then! And yet Republicans, slaves to the military industrial complex, gripe about how much we spend on the EPA, which is PALTRY in comparison.

Why don't we do the fiscally responsible thing and reduce our military spending to what China, Russia, Germany, Japan, and France spend on their militaries, COMBINED ... 320 Billion per year. We could DOUBLE what we spend on the Department of Homeland Security and still have 350 Billion left over to help balance the budget!

Posted by: hesingswithfrogs | November 8, 2010 12:28 PM | Report abuse

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