The New Tax Orthodoxy: No Revenue, Nohow, Never

The twin mantras of the DC establishment are deficit reduction and balance. But “balance” is a multi-pronged concept. On the one hand it means that a deficit reduction solution must be balanced between tax increases and benefit hikes. But on the other hand it means that blame for failure to enact this agenda must be evenly apportioned between both parties, regardless of who is really to blame. So when President Obama offered John Boehner a “balanced” package of $3 trillion in spending cuts plus $1 trillion in increased revenues and Boehner rejected it, there was a problem. The blame for lack of balance was imbalanced. It was all John Boehner’s fault!

Fortunately, the system has, like the human body, a powerful immune system. So after a couple of days of this open sore in the dogma of balance out there putrefying, a new series of stories began to emerge to clot the wound. Maybe the real issue was that Obama tried to change the deal at the last minute? Maybe the $3 trillion in cuts wasn’t real? Surely, if a balanced deal wasn’t achieved the blame must be balanced. All was right with the world.

Then came last night’s debate, when the host from Fox asked an important question: Who up on the stage would agree to a package of 10:1 budget cuts to tax increases, with the stipulation that the cuts are “real”? The answer: nobody. One can say that this was merely politicians playing to their base and some of them know better. And perhaps it was, but it’s extremely difficult to turn around and break a promise like that. So you have the entire Republican Party committed to the view not only that tax increases are undesirable, but that it’s unthinkable to include even small increases in a bipartisan bargain for large spending cuts. In a normal country, that would be an extreme and strange position to take, but I’m not sure it would be a damaging one. The question, after all, would simply be whether such an extreme party can or can’t win a governing majority. If it couldn’t, its weird views would be irrelevant. If it could, then it would deserve congratulations and good luck in its effort to implement an all-cut agenda. But by a series of odd quirks of fate, the Republican Party exercises substantial influence over budget outcomes even if it mostly loses elections. So as long as they stick to this view, it will be neither possible to raise taxes nor to substantially reform major spending programs.

Standard and Poor’s work may be shoddy, but it hardly strikes me as an insane conclusion that this is not the soundest political culture in the world.