Mysteries Of The Baseline Controversy

One of the key issues for the Supercommittee is relative to what baseline will it score its achievement of $1.2 trillion in deficit reduction? There are a number of different ways in which this could matter, but the most important one concerns the Bush tax cuts. On a “current law” baseline you assume that the tax cuts will expire whereas on the “current policy” baseline you assume they’ll be extended. One way in which this matters is simply score. Deficit reduction relative to current law is a very ambitious goal to achieve, whereas deficit reduction relative to current policy is pretty easy.

Now the funny thing here is that if you assume that Democrats want high revenue and Republicans want low revenue, both parties currently seem to be fighting for the wrong baseline. Paul Ryan and John Boehner are telling people the Supercommittee will use the current law baseline while Gene Sperling disagrees. It’s true that, literally speaking, the current law baseline makes it harder for the Supercommittee to raise taxes. But it also makes it unnecessary. If the Supercommittee does $1.2 trillion in spending cuts, with a fair allocation between defense and non-defense spending, and then the Bush tax cuts separately expire then we have a quite progressive-friendly approach to deficit reduction. Then if President Obama gets re-elected, he can push in his second-term for a slightly revenue-negative comprehensive pro-growth overhaul of the tax code while protecting his key priorities. Conversely, if the committee uses a current law baseline it can do a 50/50 taxes/cuts split that, in effect, locks something like 80 percent of the dollar value of the Bush tax cuts into place.

The best explanation I have of why the parties are lining up the way they are is that in America’s system of gridlock-based government priority is now on buck passing rather than achieving policy goals. Democrats are putting a higher priority on a desire to get Republicans to vote for tax increases than they are on a desire to have taxes be higher. Republicans, conversely, are trying to avoid voting for tax increases rather than trying to prevent tax increases from taking place. Part of the thinking may be that President Perry/Bachmann/Romney will be able to re-implement tax cuts in 2013 anyway so the most important thing is the political positioning rather than the actual policy.