Fiscal Cliff

11.27.12

Fiscal Cliff, Day 21: You Call That a Compromise?

As the fiscal cliff nears, some Republicans are backing off their anti-tax orthodoxy—but they’re still living in the past. Daniel Gross on why the concessions aren't good enough.

It’s Day 21 of the Fiscal Cliff Hostage Situation.

Three weeks after his reelection, President Obama is showing no signs that he’s willing to release the Bush-era tax cuts from his grasp. In New York and elsewhere, CEOs are ordering up their private jets to ferry them to Washington for a White House meeting scheduled on Wednesday. Obama is hosting small-business owners too. Policy wonks are crunching numbers on potential solutions. And Republicans are getting antsy.

Indeed, the signs of desperation are rising. For 20 years, ever since President George H.W. Bush signed on to a deal to raise taxes, the orthodoxy has held that a Republican elected official can never talk about, accede to, wink at, or vote for a piece of legislation that would raise tax rates or tax revenues. The chief enforcer of this ideological rectitude has been Grover Norquist, president of Americans for Tax Reform, who has forced generations of Republicans to sign his no-tax pledge.  Violators have faced often-fatal primary challenges.

But pledges can’t release a hostage. And three weeks into the crisis, elected Republicans are finally waking up to the reality that if no evasive action is taken, tax rates on income, capital gains, and dividends will rise in just five weeks. Averting such an unwanted effect requires reaching a deal with President Obama and the Democrats. And reaching such a deal requires acknowledging a need for more revenues.

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Dan Gross talks to Reuters' Felix Salmon on what really happens if we go over the ledge.

It took a while, but Republicans have started to throw Commissar Norquist under the bus. Last Wednesday, on the eve of Thanksgiving, Sen. Saxby Chambliss of Georgia said “times have changed significantly, and I care more about my country than I do about a 20-year-old pledge.” Appearing on ABC’s This Week on Sunday, Sen. Lindsey Graham of South Carolina said he would be willing to violate the pledge “for the good of the country.” Rep. Peter King of New York echoed the sentiment.

Effectively, some Republicans seem to be telling Norquist and the anti-tax absolutists that the game is over. If Republicans want to avoid the huge tax increases that will ensue when the U.S. flies off the fiscal cliff, they’ll have to be active participants in some tax increases. Sen. Bob Corker of Tennessee, has explicitly tried to become part of the solution by proposing in the Washington Post a 242-page plan that would reduce the deficit by $4.5 trillion through spending cuts, changes to entitlements, and capping tax deductions for the wealthy.

That certainly counts as progress. But these apparent concessions to reality, and to the Democrats, aren’t likely to hasten the release of the hostage. Here’s why. Too many Republicans still insist on acting as if the election didn’t happen. The emerging Republican consensus is that a grand bargain on taxes and spending can be reached through a mixture of spending cuts and entitlement and tax reform. Hello! It’s August 2011 on the phone. It wants its deficit-reduction deal back! The deal that President Obama and House Speaker John Boehner were discussing in the summer of 2011 fell apart largely because Boehner didn’t think he could sell a small amount of revenue increases to his members. The same deal—or one remarkably similar to it—won’t come to fruition now because Obama would have difficulty selling it to Democrats. And because Republicans lost the election.

One of the odd features of the hostage crisis is the degree to which Republicans have failed to recognize that they are the ones who must bargain to release the hostage. The Democrats do not need Republicans in order to get significantly higher revenues. All they have to do is do nothing. Also, negotiating textbooks advise that when you are at a disadvantage, it’s not helpful to start negotiations by slapping the other guy in the face. Yet Both Boehner and Majority Leader Eric Canto seem to be united on the notion that somehow Obamacare, the president’s signature achievement, must be on the table as part of the negotiations. Wait. What? Obamacare actually reduces Medicare spending by $715 billion, as Republicans reminded voters throughout the campaign. Lindsey Graham said he would be open to higher revenues through cutting loopholes, but only if Democrats were willing to negotiate on entitlements. Wait. What? Social Security has nothing to do with short-term imbalance between taxes and spending.

For the last several years, stomping your feet and saying deficit reduction must come from spending cuts alone was not only acceptable for Republicans—it was a winning strategy. Not any more. But there’s a new talking point in effect. It goes like this: sure, President Obama and Democrats won an election in which there was an explicit debate about whether taxes on the wealthy should be higher, and about whether Medicare and Social Security should be dramatically scaled back over time. But the result should somehow be to start to talk about dismantling two of the Democratic Party’s greatest achievements of the 21st century: Social Security and Medicare.

The White House isn’t biting. So far, its main response has been to acknowledge the Republicans’ willingness to make a deal, but to insist that the starting point be letting tax cuts for upper-income earners expire.

We’re told that the talks are accelerating, and that the sense of urgency is growing. The hostage’s health is in danger, after all. But the two parties remain very far apart. And there are only five weeks to go until the tax cuts expire.