Word leaked today that House Republicans’ fiscal cliff counteroffer included a proposal to permanently extend current income tax rates on the wealthy. An obvious nonstarter, right? So what’s going on?
Both sides remain content with not talking overtly about the elephant in the room — entitlement spending. On the tax issue, the Obama administration and congressional Democrats see public opinion as definitively on their side; almost half of Republicans believe Obama has a mandate to raise taxes on the rich. They’re riding a political winner, and there’s no reason to tug on the reins just yet.
Republicans, meanwhile, are trapped in the jaws of a vise. Jonathan Chait asserts that conservatives are having trouble agreeing on specific spending cuts due to a fundamental misunderstanding of the federal government: “When the only cuts on the table would inflict real harm on people with modest incomes and save small amounts of money, that is a sign that there’s just not much money to save. Its’s not just that Republicans disagree with this; they don’t seem to understand it.”
I don’t think that’s the case. Former CBO chief and McCain presidential campaign adviser Douglas Holtz-Eakin, for example, was quite forthright about what he’d like to see in exchange for higher tax rates on the wealthy: cuts of $1 trillion dollars each to Medicare, Medicaid, and Social Security over 10 years. I doubt he’s alone among Republicans. But there’s just a minor problem with such a proposal: It’d be wildly unpopular. As Reason’s Peter Suderman notes, looking at recent polling by McClatchy-Marist:
Unlike the overall polling sample, a majority of the poll’s Republicans do not support raising taxes on the wealthy. But they don’t support any of the spending cuts mentioned in the poll either. Not to Medicare or Medicaid, and not to the tax loopholes surveyed either [emphasis mine]. Republicans, in other words, don’t support much of anything except leaving things the way they are now.
Any way Republicans turn — toward expenditures or toward taxes — they face stiff public opposition.
Joshua Green identifies an additional sticking point. In a column for the Boston Globe, Green pours cold water on a seemingly promising GOP strategy of conceding on taxes now and taking up entitlements again next year in a reprise of 2011’s debt-ceiling showdown:
If such a showdown comes to pass, however, debt default is a threat whose power would almost certainly diminish as the deadline approaches.
That’s because, although a debt-limit fight wouldn’t pit the rich against the middle class in quite the same way as the fight over tax cuts, it would force Republicans to enumerate and defend precisely the entitlement cuts they are desperate to obscure. And they’d be doing so in a way guaranteed to maximize attention, because they’d be threatening to tank the economy — a far scarier prospect than going over the fiscal cliff.
It seems to me the House Republican leadership realizes that the time to extract concessions on entitlement spending is right now. Green, for his part, believes Obama is more willing to agree to cuts “than most Republicans seem to understand.”
If that’s the case, then petulant posturing over tax hikes serves a purpose for both sides. It’s a smokescreen behind which the real compromise may take place.