Tax Increases Are Political Poison for the GOP
by Dan MitchellRepublicans are fighting about taxes. But they’re fighting with each other, not Democrats. I’ve already written about this topic once, but the issue has become more heated, and the stakes have become much larger. And this time I’m going to focus on the political implications.
First, some background. One side of this battle is led by Grover Norquist of Americans for Tax Reform, who is the organizer of the no-tax-increase pledge. Grover argues that America’s fiscal problem is too much spending and that higher taxes are economically and politically foolish.
The other side of the conflict is led by Senator Tom Coburn of Oklahoma, who argues that America’s fiscal problem is too much red ink and that higher taxes are a necessary price to strike a deal with Democrats that supposedly will reduce budget deficits.
The first skirmish in this fight involved ethanol tax credits. Senator Coburn wanted to get rid of the credit, which everyone agrees is economically destructive and fundamentally corrupt.
But there’s a catch. when you get rid a tax preference, even an odious one, that means the government gets more money. In other words a tax increase. Senator Coburn has no problem with that outcome.
Grover Norquist says that all of the arguments against ethanol are correct, but he says that any proposal to get rid of the credit should be accompanied by a tax cut of equal magnitude.
If the ethanol credit is worth about $6 billion per year, as Senator Coburn’s office states, then find a tax cut of similar size, pair it with the ethanol credit, and kill two birds with one stone. Seems like the best of all possible outcomes, which is why Grover is correct from a policy perspective.
The fight over the ethanol credit may seem like a tempest in a teapot, but it was symbolically important – particularly since it is a precursor for the much bigger fight about whether GOPers should agree to a budget deal with Democrats.
Indeed, this may already be happening as part of the “Gang of Six” negotiations, with Senator Coburn and two other Republican Senators joining three Democrats in putting together some sort of grand compromise (presumably something similar to what was proposed by Obama’s Fiscal Commission).
In this case, the tax increase could be enormous, well over $1 trillion. No wonder this battle is getting heated. Here are some excerpts from a recent story in the Washington Post.
Republicans are feuding over whether to abandon the party’s long-held opposition to higher taxes in pursuit of a deficit-cutting deal with Democrats. …both sides say this cuts to the core of a quandary for the GOP: Will the cause of trimming deficits run aground on the conservative principle that the government must not increase the amount of money it takes in through taxes? …“If we don’t do something, what we’ve done is put the country at risk,” Coburn said in an interview. “I agree we ought to cut spending, but will we ever get the spending cut to the level that we need to without some type of compromise?” Norquist…argues that bipartisan deals struck by Presidents Ronald Reagan in 1982 and George H.W. Bush in 1990, both of which entailed increased taxes, resulted in bigger government rather than spending cuts that both men thought they had secured. “This is a fantasy on the part of the liberal Democrats that the Republicans would be stupid enough to repeat 1990 and throw away a winning hand politically,” Norquist said.
As the excerpt correctly acknowledges, this issue deals with both economics and politics. From an economic perspective, there are all sorts of important issues:
1. What is better for the economy, lower spending or higher taxes?
2. Is it possible to balance the budget without higher taxes?
3. Would tax increases be used for deficit reduction or more spending?
But I covered these issues in my earlier post, so lets’ look at the political implications. Grover asked, in the Washington Post article, “Why would you elect a Republican Senate if they just sat down with Obama and raised everyone’s taxes?” And I was quoted about how abandoning the no-tax-hike position would heavily damage the GOP.
How the debate among Republicans is resolved in the coming weeks will play a large role in determining whether a grand bipartisan bargain on deficit reduction is possible. “There’s a significant split over whether to put taxes on the table,” said Dan Mitchell, an economist at the libertarian Cato Institute and a Norquist ally. Mitchell said the disagreement largely pits House and Senate Republicans against each other and gives Democrats a potential political edge. “Obama has it within his power to drive a big wedge between House and Senate GOP-ers and turn the tax issue from something that works on behalf of Republicans into something that works against them,” he said.
To elaborate on the last point, the no-tax-increase pledge helps the GOP because it sends a signal to all voters that they will not be raped and pillaged (at least in excess of what is happening now).
This puts Democrats in a tough position. They can play the politics of class warfare (as Obama likes to do) and say only the “rich” will pay higher taxes, but voters don’t dislike their upper-income neighbors. Moreover, they probably suspect that Democrats have a very broad definition of what counts as rich, so they instinctively gravitate to the GOP position. After all, the only sure way of avoiding a tax hike on yourself is to oppose tax hikes for everyone.
If Republicans put tax increases on the table, however, the politics get turned upside down. Instead of being united against all tax increases, voters realize somebody is going to get mugged and they have an incentive to make sure they’re not the ones who get victimized.
That’s when soak-the-rich taxes become very appealing. Democrats, for all intents and purposes, can appeal to average voters by targeting the so-called rich. And even though voters will be skeptical about what Democrats really want, they don’t want to be the primary target of the political predators in Washington.
Think of it this way. You’re a wildebeest running away from a pack of hyenas, but you know one member of your herd will get caught and killed. You despise hyenas, but at that critical moment, you’re main goal is wanting another member of the herd to bite the dust.
This is why surrendering to tax increases put Republicans in a no-win situation. They oppose class-warfare taxes because they understand the disproportionately damaging impact of higher top income tax rates and increased double taxation of dividends and capital gains. So when GOPers get bullied into agreeing to raise taxes, they want to target less destructive sources of revenue. But that usually means that taxes that are more likely to hit the middle class.
Needless to say, Democrats almost always win if there is a fight on whether to tax the middle class or to tax the rich.
Senator Coburn’s heart is in the right place, but he is creating a win-win situation for Democrats. By putting taxes on the table, he is giving Democrats a policy victory and a political victory.
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55 Comments
You watch, the devilcRAT's will do everything in their power to "guilt" the republican congress into accepting tax increases then use it against them in the next election. Consistently republicans are Charlie Brown and Lucy (devilcRAT's) is asking them to kick that football……
CUT SPENDING ACROSS THE BOARD.
It doesn't take a rocket scientist.
But they literally cannot help themselves, it is not their nature. They are like drug addicts.
Wake me when it happens.
Wait for it…here it comes…FAILURE…to listen once again. I am shocked…not. How many elections will it take?
Elections will not solve these problems, nor make them take US serious.
It will unfortunately take blood in the streets, and a total purge.
Wake you? Sorry Harry. It's not going to get done while you nap. We've all been napping for way too long.
The debt ceiling spin… an act of fraud?
http://activistsandairplanes.com/2011/04/25/the-d...
Yep.
"Senator Coburn’s heart is in the right place, but he is creating a win-win situation for Democrats. By putting taxes on the table, he is giving Democrats a policy victory and a political victory."
Further and beyond that, Senator Coburn is acting in concert with the Democrats to put the Republicans in a box.
There is no reason to think that anything other than total failure of the United States will occur at some point in the future. What happens to America when they can't agree on $75 billion when the deficit is as big as we all know it is?
America won't learn its lesson on entitlement spending, etc. because those programs will not be cut on a fiscal basis, they will be cut because they break their solvency barrier and be removed from the budget and five years down the road someone else will try a "new way of doing things with new reforms that cut out the waste and excess."
Sad, but if you think we will ever get out of this tailspin, you are living in a fantasy.
I keep alluding to that exact outcome. I know that my patience with the Congress idiots is gone. There will be blood in the streets one day. Seems like it could happen this summer the way things are shaping up. Is time to open all those crates I invested in? I have many flavors.to choose from.
There must be blood. I agree.
We do not have a revenue problem. Washington has a spending problem, and all who have been there more than one year is and are the ones who we need to target. After that we need to focus on the life long golden parachutes for the government class workers.
The America of my youth… ahhh thanks for reminding me of a time where we swam in the local lakes without being fined or charged an entrance fee ,left the doors open and rode our bikes to the park without helmets, without a bike lane and if you ran off to play baseball, your bike was there when you came back…
That's when conservatism didn't need to be explained, it just was….
Point taken, however I take it you also get mine.
I don't see it happening unless something radically changes, which I also don't see.
What do you propose then?
The America of your youth has been replaced with this http://www.breitbart.tv/new-black-panthers-teach-... .
I got a silly idea. Abolish the tax and create a one month gas holiday for the federal gas tax. It goes to everybody. It's a tax cut. And god forbid some people might figure out that the government makes more money off gasoline than the oil companies.
Walter Hanson
Minneapolis, MN
You are absolutely, 100% correct.
The next time you fill up for gas, look on the pump.
There should be a sticker, telling you how much you pay in takes.
Each state, and the Federal government, make more off gasoline taxes, than the refiners do, and those state and federal entities do not even have to touch the product. They just collect taxes.
Is this a great country?
The beginning of the end comes when the lifting of the vale can hide you no more.
Inevitability.
If any one wants to cut their deficit the way not to do it is to spend more money that you do not have, why is it so hard for the politicians to understand this? The American Citizens already pay more then their fair share of taxes that the politicians redirect to their pet projects so in my opinion raising taxes will only hurt the 90% of Americans that the elected politicians are claiming to try to help.
Here is a novel idea for the politicians, how about just spending less tax payers money then is collected each year.
Tell US how you really feel.
Mrs. Constitutional Conservative, Have a beautiful day regardless of what happens out and about.
Oh I wouldn't worry too much about this. The GOP has already signed their mutually assured destruction agreement by turning over the whole dam public dialogue to idiots like Trump and Ron Paul.
This is just another iceberg for the already sinking GOP ship to hit. With their brilliant election strategy to date, ie Trump's birther crusade and Ron Paul's "The ground zero mosque is as American as it gets" idiot remark……
helllll, obama won't even need to campaign.
When will the small govt faction (which SHOULD be mainstream) of the Republican Party learn to control their own dialogue? There isn't that much left for the MSM to bastardize.
The RINOs are sipping the poison….
I wish them an agonizing death…..
RINOs have always been short-sighted….
never able to see beyond their greedy snouts….
"But there’s a catch. when you get rid a tax preference, even an odious one, that means the government gets more money. In other words a tax increase."
Not necessarily. A revenue increase does not necessarily equal a tax increase. When Reagan cut taxes in the 1980s, revenue to the federal treasury doubled by the end of the decade (unfortunately the Democrat-run Congress spent all the additional revenue and a half, but that's another story).
Tax increases at this time will damage the economy like never before.
Wealth is CREATED in the private sector. Burdensome taxes SHRINK the private sector which in turn leads to less wealth creation. That means less income, fewer jobs, less tax revenue etc.
The ONLY way to increase tax revenue is to grow the wealth production of the US, namely the private sector. That's why the tax cuts under Kennedy generated $200 BILLION MORE TAX REVENUE for each administration. The tax cuts under Reagan and Bush led to $300 BILLION ADDITIONAL in tax REVENUE. (Plus 10+ million jobs were created under Kennedy, Reagan and Bush post tax cuts)
Yes, LOWER taxes means MORE tax revenue.
The concept really isn't that difficult to grasp, but it might as well be particle physics to the regressives and RINO's.
"Tax Increases Are Political Poison for the GOP"
well, then, time to take your poison, GOP!
Americans favor tax increases over entitlement cuts to deal with debt problem.
http://www.washingtonpost.com/politics/poll-shows...
In his speech last week, the president renewed his call to raise tax rates on family income over $250,000, and he appears to hold the high ground politically, according to the poll. At this point, 72 percent support raising taxes along those lines, with 54 percent strongly backing this approach. The proposal enjoys the support of majorities of Democrats (91 percent), independents (68 percent) and Republicans (54 percent). Only among people with annual incomes greater than $100,000 does less than a majority “strongly support” such tax increases.
It's because people keep voting for RINOs and neocons instead of real fiscal conservatives and libertarian people. Just look at how many people get all warm and fuzzy over Paul Ryan's "I want to spend more than Bill Clinton did" budget plan.
Now the Democrat slaves that have been kept on the plantation, are keeping others on the plantation and calling it freedom from oppression.
We've gone down the rabbit hole…
Indeed.
That was a joke, right, Red?
We aren't asking much….right?
Only that DC marginalize itself, it's international influence, defund their bankroll, stop being elitists with legions of minions to do their grunt work, wave the media cameras off every time someone grovels at their feet to "hear their opinion" lose the jets, the sicophants on K Street throwin wads of cash at them every time they get close, give up the Sunday Pundit circuit, cut their pay, slash their retirement, shorten their terms, and forget that cushy retirement and the board positions in multinational corporations when they retire….
what's not to love?
Death of a Democratic Republic – when 51% get to vote themselves the wallets of the other 49%,
So a pol is going to determine what the people want? Lets see first questions is who was contacted in this poll? second how was the poll question phrased to the people?
All people who have some intelligence understand that a poll can be conducted to get the preferred results of those taking the poll.
All that poll shows is that class warfare is alive and well in our country.
I do see it radically changing Harry. I propse that those who are still asleep will start to wake up when they get hit over the head with a 6 buck a gallon fill up or a $12 Big Mac meal. We should be there to ask them if they've had enough, if they haven't already.
It's heading that way.
Well, I'd let them in front of a camera occasionally.
His heart may be in the right place but his head is up his ……………
That may well be the case, this is one of those, we shall see items.
Of course this will be good for no one.
And in no way any sort of guarantee that things will then change for the better.
So yes, you are right, unfortunately.
Tax increase political poison – AS IT SHOULD BE!!
Almost every American understands spending more than you have results in a bad outcome. This is also true of a country in competition with every other country.
Use your Dollars to purchase a life raft while their still worth something. Soros already dumped, Warren Buffet is getting out of Dollars and shopping world wide, and every other big buck person know what's coming. Your 401K will be left holding the Bag.
Lifting the ban on DRILLING along with harvesting ALL American oil resources would be a good idea. But AssetHole obama & Co. are more concerned with windmill power.
Impeach the treasonous B'tard before the ship of state sinks.
Ain't heard of Ma/Pa oil companies since old man Clampetts shot a hole in the ground and struck oil. Guess they couldn't afford the exploration and harvest costs associated with the hard to find stuff.
When oil's down, nobody weeps for the losing BIG OIL companies.
Here here !! I'll drink to that!
Of course American's favor a Tax Increase. When you have more than 40% of the population not paying any tax at all, what the hell, stick it to them "rich" B'tards. Most Americans seem to not have a problem with taxes, as long as somebody else is getting taxed. A government with the policy to rob Peter to pay Paul can be assured of the support of Paul.
"A liberal is someone who feels a great debt to his fellowman, which debt he proposes to pay off with your money." ~ G. Gordon Liddy
Polls are imperfect. But if you are Republican politician, how much do you wanna bet?
oh look, this just in on the wires. Republicans are getting the beat down for daring to threaten Medicare… http://www.reuters.com/article/2011/04/26/us-usa-...
There's gotta be some taxes. come on now.
gee, somehow the Clinton tax increase didn't kill our republic.
Raising taxes has never worked, historical fact. The 4 major times since Wilson instituted this unfair PROGRESSIVE tax policy on us where we have seen true economic growth for all has been when taxes were lowered. Kennedy, Reagan, Clinton and Bush look it up.
Common sense and neanderthal intelligence would tell anyone the more of your own cash, resources, etc you have control over the more freedom both economic and personal you will have and the more choices that will be available to you.
Democrat (Progressive Communists)–all the same; want total control of your wealth so they can control all of the decisions you make and keep themselves in power.
It all started with the education system and has gone from there. Very simple, very effective. The tide is finally turning, knowledge truly is power.
Dan Mitchell is being too kind to Sen. Coburn. He's becoming no less a moderate than John McCain. Gone are his charts and graphs and aggressive fiscal posture. He has shown his true colors since Obama was elected. He has been an apologist for Obama on many issues. He is just another GOP big government authoritarian. Now that there is a chance of rolling back Federal excess he's been doing nothing but throwing up road blocks.
He's a traitor to the cause he once led. To hell with him and his Party. The GOP is incapable of seizing the initiative. The real conservatives in the freshman class and the handful of actual small government incumbents need to oust the gutless phonies in charge currently or go Independent. Either the GOP bends to the will of the voters or we have to kill the party off.
When polls are conducted with those who have the perception of receiving something from this great govt what do you think the results would be? What most people do not understand or see is how much this govt actually takes from every one, yes I said everyone. What do you think would happen to our country if the govt actually took less from the people and in turn less for the people?
So, polls are suspect because they are conducted by a group who has questionable motives.
Whereas your comment, in the competition for legitimacy, is clearly unbiased and should be taken much more seriously than this poll.
Because, as you say, "most people do not understand". But you do! okey-dokey.
who are you, Salvador Dali? This is getting surreal. Go back and read your last comment.
First you ask for some data that could only be presented as a set of statistics.
then you disclaim the legitimacy of statics, generally.
okey-dokey!
So what the govt actually takes from the people is only statistical?
No, its purely imaginary.
That is a novel way to think about taxes.
it was sarcasm.
So, Mr Riddler, how much does the gubment "take" from people?
I want to know your answer, but I have my own.
My answer is: Exactly the amount that, we the people, elect our representatives to negotiate and determine. We are taxed to the amount that we democratically and collectively determine. Not a penny more and no less.
My answer will start with the enumerated powers in the Constitution and finish there also. Most of the programs and departments that we are paying for on a federal level should be being conducted by the individual states themselves.
Why is it that the people of each state are taxed and the money goes to dc to be redistributed back to the states based on which politicians does the best job getting their pork barrels into a a bill?
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