Oct. 16 (Bloomberg) -- No matter which deal ultimately resolves the U.S. government shutdown, it’s almost certain to include a new bicameral budget commission. This will be the eighth major budget commission since 2010. Until now, every single one of them has failed for the same reason: taxes. And if nothing changes, this one will fail too.
But something should change: Democrats should admit the obvious. For the time being, they’ve lost on taxes. And you know what? That’s OK. At least, it could be, if they were willing to admit it and smartly negotiate the terms of their surrender.
For Democrats, the idea behind sequestration -- the across-the-board spending cuts that came about from the 2011 debt-ceiling debate -- was that the defense cuts would be so objectionable to Republicans that it would force them to cut a deal that raised taxes.
Yet Democrats made a mistake. Protecting defense spending isn’t a top priority for today’s Republican Party. There are exceptions among the old guard, of course. Senators John McCain and Lindsey Graham hate sequestration. Appropriators like Representative Hal Rogers desperately want it lifted. But the old guard long ago lost control of the Republican Party. The Barack Obama administration is much more anxious over the defense cuts than your average House Republican.
Most elected Republicans see sequestration as a huge victory for them. So do crucial unelected Republicans. “Sequester is the big win,” Grover Norquist, the president of Americans for Tax Reform and the enforcer of the Republican anti-tax pledge, told me. “It defines the decade.”
It’s not that Republicans like sequestration’s cuts. They loathe them. The policy takes an ax to the one part of government where Republicans like to spend -- defense -- and exempts Social Security, Medicaid, food stamps, Obamacare’s subsidies and Medicare beneficiaries. That is to say, it exempts pretty much every program that Republicans think is to blame for the debt while slashing away at the one governmental function Republicans actually admire.
But it does one thing Republicans love: It locks in $1.2 trillion in deficit reduction without a dime in new tax revenue. And they intend to hold onto that win for dear life.
To put it plainly, Democrats aren’t going to persuade Republicans to lift sequestration in return for a mix of entitlement cuts and tax increases. It doesn’t matter that those tax increases will come in the form of ending certain tax breaks. It doesn’t matter that Representative Paul Ryan’s budget says these tax expenditures are “similar to government spending.” It doesn’t matter that raising taxes on the rich is popular.
At this point, the Republican opposition to taxes has nothing to do with policy. It has nothing to do with the economy. It’s religion. It’s dogma. It’s identity. Refusing to raise taxes is what it means to be a Republican in this day and age.
The worst mistake Democrats could make would be to become the mirror image of Republicans on the tax issue. Republicans are cannibalizing everything they care about -- defense, deficit reduction, their chances of retaking the Senate -- to keep taxes low. The Republican obsession with taxes is an opportunity for Democrats to exploit, not an example for them to mimic.
The core question for the American economy isn’t taxes. Or spending. It’s growth. That’s true even if all you’re worried about is the deficit. As Larry Summers wrote in a Washington Post op-ed article, the Congressional Budget Office’s numbers suggest that “an increase of just 0.2 percent in annual growth would entirely eliminate the projected long-term budget gap.”
The budget debate, in other words, should be a growth debate. And Democrats’ top priority shouldn’t be higher taxes. It should be growth -- and, to be sure, the distribution of that growth.
When the budget commission sits down, Democrats should expand the playing field.
First, they should realize that sequestration is the best opportunity they’ll ever have to cut defense spending, and that a dollar in defense cuts is exactly as effective as a dollar in new revenue at relieving pressure on social services. Why Democrats have decided that cutting the incentives rich people have to donate to charity, buy big homes or live in blue states is so much better than cutting defense spending escapes me.
Second, Democrats should realize the objective need for tax increases is less than it was in 2011. As they note, the deficit has fallen, and fast. Health-care costs are down. The CBO’s budget projections are much sunnier than they were a few years ago. Democrats like to argue that this makes the Republicans’ monomaniacal pursuit of spending cuts a bit ridiculous. But it does the same to their insistence on tax increases.
Third, they should see their leverage clearly: Republicans badly want entitlement cuts, but they don’t want them enough to trade for taxes. They badly want to replace sequestration, but not enough to trade for taxes. And they badly want tax reform -- but, again, not enough to trade for higher taxes.
One answer to that is to keep sequestration in place until something changes. That’s basically the answer Democrats have come up with. But it’s a terrible answer. It’s bad for growth, bad for government, and bad for the people who depend on government programs.
Democrats should use their leverage to get something they actually want. Immigration reform and infrastructure investment are obvious places to start. They mean vastly more to the economy and to people’s lives than slightly higher taxes on rich people. And they’re things that many in the Republican Party want, too.
There’s precedent for these kinds of wide-lens deals: The 1997 Balanced Budget Act was all spending cuts, but part of the bargain was that Republicans agreed to create the Children’s Health Insurance Program.
Today’s Republican Party might simply say no to these kinds of broader deals. If so, then at least Democrats tried every compromise possible, and it’s that much clearer that Republicans simply refuse to make any concessions at all.
But if Democrats don’t try because they refuse to admit that sequestration was a strategic error and taxes aren’t going to go up for the next few years -- well, that’ll just mean piling one mistake on top of another.
(Ezra Klein is a Bloomberg View columnist.)
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