Commentary Magazine


Topic: fiscal cliff

Happy New Year, America

If you’d like to have your New Year’s Eve thoroughly ruined, I’d suggest taking a look today at Mortimer Zuckerman’s piece over at USNews.com, “Brace for an Avalanche of Unfunded Debt.”

It’s so depressing because it’s true. The federal government keeps its books not in ways that most clearly reveal the true financial picture, but in ways designed, quite deliberately, to obscure that picture. This is for the short-term benefit of politicians and nothing else, the country be damned. And, as Zuckerman notes, unless something is done about this, and soon, that is exactly what the country will be.

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If you’d like to have your New Year’s Eve thoroughly ruined, I’d suggest taking a look today at Mortimer Zuckerman’s piece over at USNews.com, “Brace for an Avalanche of Unfunded Debt.”

It’s so depressing because it’s true. The federal government keeps its books not in ways that most clearly reveal the true financial picture, but in ways designed, quite deliberately, to obscure that picture. This is for the short-term benefit of politicians and nothing else, the country be damned. And, as Zuckerman notes, unless something is done about this, and soon, that is exactly what the country will be.

As he points out, the country is incurring future financial obligations at the rate of $8 trillion a year. That exceeds the total taxable income of everyone earning more than $66,198 a year and all corporate profits. Even a liberal should be able to understand that if future obligations in entitlements are rising at $8 trillion and the total taxable income of the middle class and up, plus corporations, is $7 trillion, “getting the rich to pay their fair share” won’t do the trick.

The good news, of course, is that these future obligations are not like the national debt, which is at $16 trillion and rising fast. The debt is an inescapable obligation because we pledged the “full faith and credit of the United States” when we borrowed the money. The only alternatives don’t bear thinking about: repudiating the debt or inflating it away.

As Zuckerman points out, it costs $359 billion to service the debt at today’s very low interest rates. Should interest rates begin to rise, either because of returning prosperity or a loss of faith by the market, the cost of servicing the debt will increase $150 billion for every percentage point rise in interest rates. We’re currently paying about 2.2 percent on the debt. Greece is paying over 16 percent to borrow money. As they say: you do the math.

Unlike the debt, future entitlement obligations are obligations only because current law says they are, and laws can be changed. For instance, if we were to, 1) change the formula by which cost-of-living increases in Social Security payments are calculated so that it didn’t overstate inflation as the formula does now, and 2) gradually increase the age of eligibility to reflect ever-increasing life expectancy, Social Security would become solvent for the foreseeable future.

The annual cost-of-living adjustment is designed to keep recipients’ purchasing power intact, but it currently gives them, in effect, a raise. Is it really too much to ask of recipients that they get what’s due them, not more? Likewise, would raising the age of eligibility one month for every year future recipients are now under the age of 55 incur unbearable political opposition? Not if politicians, starting with the president, do their jobs and, you know, lead, explaining the truth and showing the way out of trouble. I have a news bulletin for the political class: the American people are neither stupid nor selfish. Tell them the truth and they will accept it.

But to do that—to tell the American people the truth about the financial situation of the country—requires that politicians surrender the power to keep the books in self-serving ways. The country needs just what corporations have: a set of accounting rules they are obliged to follow that reveal the truth, not conceal it, and an independent authority to certify the books as honest and complete, including future obligations. (The Congressional Budget Office, which “scores” legislation, is nonpartisan, but it is by no means independent. It is a creature of Congress and has no choice but to do Congress’s bidding, which is political protection first, the truth a long-way second.)

There will be no long-term solution to the impending financial disaster until the government keeps honest books. The sooner this fact is on the country’s political radar and becomes part of the discussion, the better. There is not a lot of time left.

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The Times’s Idea of “Tax Reform”

The New York Times has a lead editorial today called “Why the Economy Needs Tax Reform.”  It starts off briskly enough:

Over the next four years, tax reform, done right, could be a cure for much of what ails the economy. Higher taxes, raised progressively, could encourage growth by helping to pay for long-neglected public investment in education, infrastructure and basic research. More revenue would also reduce budget deficits, helping to put the nation’s finances on a stable path. Greater progressivity would reduce rising income inequality, and with it, inequality of opportunity that is both an economic and social scourge.

Higher and more progressive taxation, in other words, is just the medicine the economy needs to begin to flourish again for the first time in six years. If the Times can produce even a single instance in history where higher and more progressive taxation led to economic prosperity I will eat my hat. The Times’s formula is precisely what FDR tried in the Great Depression. It didn’t work; the depression lingered on and on. But I can give you numerous instances where tax cutting produced near-instant prosperity (the 1920s, the 1960s, the 1980s, the 2000s in this country and many another instances in other countries; see this from Power Line).

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The New York Times has a lead editorial today called “Why the Economy Needs Tax Reform.”  It starts off briskly enough:

Over the next four years, tax reform, done right, could be a cure for much of what ails the economy. Higher taxes, raised progressively, could encourage growth by helping to pay for long-neglected public investment in education, infrastructure and basic research. More revenue would also reduce budget deficits, helping to put the nation’s finances on a stable path. Greater progressivity would reduce rising income inequality, and with it, inequality of opportunity that is both an economic and social scourge.

Higher and more progressive taxation, in other words, is just the medicine the economy needs to begin to flourish again for the first time in six years. If the Times can produce even a single instance in history where higher and more progressive taxation led to economic prosperity I will eat my hat. The Times’s formula is precisely what FDR tried in the Great Depression. It didn’t work; the depression lingered on and on. But I can give you numerous instances where tax cutting produced near-instant prosperity (the 1920s, the 1960s, the 1980s, the 2000s in this country and many another instances in other countries; see this from Power Line).

Yes, Clinton raised taxes in 1993 and the economy prospered for the next seven years. But that is a classic case of the post hoc ergo propter hoc fallacy. The economy was already growing well and the real economic growth of the 1990s (and the great rise in the Dow Jones Industrial Average) began only in November 1994, when a Republican Congress was elected and put real brakes on government spending. Government spending rose only 22 percent between 1994 and 2000, while revenues rose by 61 percent. 

As for increased spending on education, the country spends about four times as much, per pupil, in constant dollars, as it did in 1950. So public investment in education has hardly been long-neglected, but the results have been dismal. Obviously, money is not the problem here. Neither is it in higher education, where tuition has been rising far faster than either inflation or medical costs (a clear indication that a cartel is at work). But much of the increased income has gone not to better educating students but to administrative bloat on an epic scale. The University of Wisconsin at Madison has someone on the payroll with the you-can’t-make-this-stuff-up title of Vice Provost for Diversity and Climate.

As for reducing income inequality—which is simply assumed by the left to be pernicious without a shred of evidence being presented that it is—you can read what I think about this spectacularly stupid idea here.

The Times goes on:

A logical way to help raise the additional needed revenue would be to tax capital gains at the same rates as ordinary income. Capital gains on assets held for more than a year before selling are taxed at about the lowest rate in the code, currently 15 percent and expected to rise to 20 percent in 2013. That is an indefensible giveaway to the richest Americans. Research shows that the tax breaks do not add to economic growth but do contribute to inequality. Currently, the top 1 percent of taxpayers receive more than 70 percent of all capital gains, while the bottom 80 percent receive only 6 percent.

Let’s pick apart this farrago of intellectual dishonesty. Yes, capital gains are taxed at a low rate compared to ordinary income. But capital gains in stocks and small businesses come, indirectly, out of after-tax income. Publicly-held corporations pay corporate income taxes (35 percent). What’s left over and not paid out as dividends (also taxed a second time) adds to the book value and hence, indirectly, the stock price. The profits of sub-chapter-S corporations are taxed as the personal income of the stock holders, so, again, the retained earnings have already been taxed when the capital gains are realized. As for the capital gains in, say, a house sale, they are taxed without regard to inflation. So a house that was owned for, say, 40 years and sold in 2012 would have experienced over a five-times inflation but would be taxed as though there had been no inflation in those 40 years.

As for much of total capital gains flowing to the top 1 percent of taxpayers, this is lying with statistics. It implicitly assumes that the top 1 percent is the same group of people year after year (a group of J. P. Morgan clones sitting around in frock coats and top hats, I suppose, lighting cigars with $100 bills). But many of those in the top 1 percent this year won’t be there next year. For example, a small-business owner who worked for 50 years to build his business and then retires and sells the business for, say $2 million. He’s in the 1 percent that year. Next year, living on his retirement income and with no capital gains, he is not. But he worked hard for 50 years, so let’s penalize that effort and that success with confiscatory taxation.

The Times even calls for higher corporate taxes, although American corporate income taxes are now the highest in the world. Has the Times not noticed that capital is now totally global, that it can–and will–flow to where the return is the highest?

Finally there is this:

Mr. Obama would be wise to instruct the Treasury Department to start work on tax reform now, exploring carbon taxes, both to raise revenue and to protect the environment; a value-added tax, coupled with provisions to protect lower-income taxpayers from higher prices, to tax consumption and encourage saving; and a financial transactions tax, to ensure that the financial sector, whose profits have substantially outpaced those of nonfinancial corporations, pay a fair share.

It’s hard to escape the conclusion that for the New York Times editorial board, tax reform and more and higher taxes are simply the same thing. And that the purpose of taxation is two-fold. One, to feed, without restraint, the ever more ravenous federal beast, and, two, to punish economic success. The financial sector earns a higher return on its capital than other sectors? How dare it? We’ll fix that!

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The GOP’s Weak Hand

In her Wall Street Journal column, Kimberley Strassel writes about two lessons the GOP should take from the fiscal cliff negotiations. One is that President Obama is not, and will never be, a serious negotiating partner. The second is that a house divided is a losing house. Ms. Strassel goes on to counsel the GOP to internalize these recent experiences, since the political dynamic won’t change much. In the future, she writes, Republicans “can continue the folly of believing this president will compromise” — or they can “realize that [Obama] will never be reasonable on taxes — and so they can’t give anything away.”

Ms. Strassel is always intelligent and always worth reading. But in this case there are some elements to the story that may complicate her analysis. It could be House Speaker John Boehner, based on his previous negotiations with Obama, went into the talks with the president hopeful but unconvinced he would get a deal this time. Still, Boehner may have made the calculation that he had to offer a plan that was viewed by the public as reasonable and flexible. Why? Because many Americans have (unfortunately) bought into Obama’s critique of the GOP as being obstinate. That is, even if Obama was not intent on compromising with Republicans, Boehner felt like he had to offer a deal that demonstrated the GOP was not being obstructionist and unyielding. So the speaker first offered raising $800 billion in revenues and then offered a second plan raising taxes on those making a million dollars or more.

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In her Wall Street Journal column, Kimberley Strassel writes about two lessons the GOP should take from the fiscal cliff negotiations. One is that President Obama is not, and will never be, a serious negotiating partner. The second is that a house divided is a losing house. Ms. Strassel goes on to counsel the GOP to internalize these recent experiences, since the political dynamic won’t change much. In the future, she writes, Republicans “can continue the folly of believing this president will compromise” — or they can “realize that [Obama] will never be reasonable on taxes — and so they can’t give anything away.”

Ms. Strassel is always intelligent and always worth reading. But in this case there are some elements to the story that may complicate her analysis. It could be House Speaker John Boehner, based on his previous negotiations with Obama, went into the talks with the president hopeful but unconvinced he would get a deal this time. Still, Boehner may have made the calculation that he had to offer a plan that was viewed by the public as reasonable and flexible. Why? Because many Americans have (unfortunately) bought into Obama’s critique of the GOP as being obstinate. That is, even if Obama was not intent on compromising with Republicans, Boehner felt like he had to offer a deal that demonstrated the GOP was not being obstructionist and unyielding. So the speaker first offered raising $800 billion in revenues and then offered a second plan raising taxes on those making a million dollars or more.

As for the House sticking together: The premise here is that in presenting a unified front, Republicans can force Obama to “fully own his mistakes” on issues like the stimulus legislation and ObamaCare. But the difference is that the stimulus package and the Affordable Care Act were considerably less popular than Obama’s stand on raising taxes on the highest income brackets. That’s why Republicans were able to stay united on the former but have broken ranks on the latter. It may be that in this particular circumstance, if Republicans stand shoulder-to-shoulder against raising any taxes, even on those making a million dollars or more, it won’t have the effect of strengthening the GOP but rather weakening it. Going over the fiscal cliff would allow the president to come back with a proposal early next year in which he cuts taxes for 98 percent of the tax-paying public, which is hardly ideal for the Republican Party.

To state the obvious: There are no good options for Republicans, who are playing an exceedingly weak hand. The president knows it. Republicans therefore have to find a way to extricate themselves from this mess while inflicting minimum damage on themselves and the country. They have to embrace a tactical retreat in order to live to fight another day. Agreeing to a bad deal in order to avoid an even worse (political and economic) outcome is not an appealing choice for Republicans. But it may be the most prudent one.

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Cliff Deal Could Shift Public Opinion

If reports filtering out of Washington are to be believed there is a fair chance that a compromise will be reached sometime over the next three days that will head off the most unpopular aspect of the impending financial crisis: across the board tax increases for all Americans. That’s the good news. The bad news is that the compromise which may be crafted between the White House and the leaders of the House and Senate will avoid dealing with the spending cuts mandated by the sequestration process including devastating decreases for the nation’s defense.

President Obama and Senate Majority Leader Harry Reid have given every indication that they think it is in their interest to see the nation head over the fiscal cliff making any sort of compromise appear like a last minute rescue no matter how unfortunate its terms might be. Most Americans are of the opinion that any deal that would limit the scope of a tax increase is better than no action at all. They are right about that but the fact that it appears impossible to do anything about spending either in the short term or the long right now represents a massive failure on the part of the government. While up until now much of the public still appears to be blaming the mess on recalcitrant Republicans who oppose any tax increases, the unwillingness of the president and Senate Democrats to budge on entitlement spending even in the shadow of potential disaster may eventually lead to a shift in opinion.

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If reports filtering out of Washington are to be believed there is a fair chance that a compromise will be reached sometime over the next three days that will head off the most unpopular aspect of the impending financial crisis: across the board tax increases for all Americans. That’s the good news. The bad news is that the compromise which may be crafted between the White House and the leaders of the House and Senate will avoid dealing with the spending cuts mandated by the sequestration process including devastating decreases for the nation’s defense.

President Obama and Senate Majority Leader Harry Reid have given every indication that they think it is in their interest to see the nation head over the fiscal cliff making any sort of compromise appear like a last minute rescue no matter how unfortunate its terms might be. Most Americans are of the opinion that any deal that would limit the scope of a tax increase is better than no action at all. They are right about that but the fact that it appears impossible to do anything about spending either in the short term or the long right now represents a massive failure on the part of the government. While up until now much of the public still appears to be blaming the mess on recalcitrant Republicans who oppose any tax increases, the unwillingness of the president and Senate Democrats to budge on entitlement spending even in the shadow of potential disaster may eventually lead to a shift in opinion.

If some sort of narrow deal is reached in the coming days, it will make it all the more necessary for Republicans to be even more determined to do something about spending in January. It is at that point that an overconfident President Obama may discover that once he has his long sought after tax hike on the wealthy, the GOP stand against more government spending may start looking a lot more reasonable to most Americans.

The president has been able to demagogue the issue of the rich paying what he says is their fair share and thereby avoided being held accountable for the massive increase in the national debt on his watch. Yet once taxes cease to be the sticking point, it will be difficult if not impossible for him and his party to use the soak-the-rich theme to evade a discussion about how to pay for out-of-control entitlement spending.

House Speaker John Boehner seemed to lose control of the Republican caucus last week in a battle in which conservatives opposed to a tax increase on anyone were numerous enough to prevent his Plan B compromise from passing. That was a blow to his prestige and leadership. But in the coming weeks he could recoup his losses as a united GOP will have the chance to stand up to the Democrats on entitlement reform.

It is that prospect of a new debate in which he will no longer be able to rely on the hoary claims of fairness that Obama rightly fears. It can only be hoped that there are enough Democrats in the House and the Senate who are sufficiently concerned about the impact of the fiscal cliff on their constituents in order to override the desire of the president and Reid to send the country over it.

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Obama’s Gesture Just for Show

The spin coming out of the White House is that President Obama cut short his annual Hawaii vacation to head back to Washington to help nudge Congress towards a deal that would prevent the nation from heading over the fiscal cliff. If so, this act of sacrifice will allow the president to show his leadership skills and craft a compromise tax and spending bill that will pass both houses of Congress. But with only a few days left before a massive across-the-board tax increase is imposed on the American people while devastating cuts in defense are put into effect, it’s much more likely that the president’s gesture is just for show.

If the president really wanted to avoid the fiscal cliff, he might have spent the weeks before his family headed to Oahu for Christmas making a good faith effort to make a deal with Congressional Republicans rather than digging in his heels on his own plan to raise taxes while refusing to substantially address the real issue at the heart of the fiscal crisis: entitlement spending. Most Republicans rightly suspect that he’s quite content to see the deadline expire. So why come home?

The answer is simple. The optics of more days of presidential golf while the country heads closer to an economic disaster would damage Obama’s image and make it clear that he views the impact of the fiscal cliff as being more to his liking than a reasonable compromise.

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The spin coming out of the White House is that President Obama cut short his annual Hawaii vacation to head back to Washington to help nudge Congress towards a deal that would prevent the nation from heading over the fiscal cliff. If so, this act of sacrifice will allow the president to show his leadership skills and craft a compromise tax and spending bill that will pass both houses of Congress. But with only a few days left before a massive across-the-board tax increase is imposed on the American people while devastating cuts in defense are put into effect, it’s much more likely that the president’s gesture is just for show.

If the president really wanted to avoid the fiscal cliff, he might have spent the weeks before his family headed to Oahu for Christmas making a good faith effort to make a deal with Congressional Republicans rather than digging in his heels on his own plan to raise taxes while refusing to substantially address the real issue at the heart of the fiscal crisis: entitlement spending. Most Republicans rightly suspect that he’s quite content to see the deadline expire. So why come home?

The answer is simple. The optics of more days of presidential golf while the country heads closer to an economic disaster would damage Obama’s image and make it clear that he views the impact of the fiscal cliff as being more to his liking than a reasonable compromise.

Throughout the negotiations over the budget, the president has always acted as if a continuation of the standoff served his interests. After all, if the deadline does expire without a deal he’ll get a good deal of what he’s wanted all along: big tax increases to give the government more money to spend and large cuts in defense spending without forcing the government to think seriously about how to reform entitlements. And if the polls are right, the Republicans will be blamed for the whole mess.

Last week’s debacle for House Speaker John Boehner in which a substantial number of House Republicans refused to back his Plan B compromise bill which would have only raised taxes on millionaires reinforced the president’s confidence that he can only win by prolonging the impasse. And by showing up in DC this week he can preserve the pretense that he wants a solution even while continuing to do nothing to advance one.

But these careful calculations may not turn out to be as well considered as the president thinks.

If the Democrat-controlled Senate fails to pass a budget proposal this week — something it has failed to do for the last three years — then it will be as much their fault as the House Republicans that a deal wasn’t made before we all go over the fiscal cliff. That means it is up to the leader of their party to ensure that some kind of bill that can pass both houses of Congress gets to his desk in the next few days.  Should, as seems increasingly likely, that not happen, the consequences would be incalculable for Obama, his party and the Congress.

The assumption that only Republicans will bear the burden of why there was no deal only holds true if the president and the Democrats send a bill to the House of Representatives before next week’s deadline. Any bill that stops the tax increases and sequestration cuts is likely to get some Republican votes even if it is a short-term solution on the president’s terms. If that doesn’t happen, the economic downturn that will likely follow is going to hurt Obama far more than a Republican party that is already out of power. If so, the president may have reason to regret that his curtailed vacation wasn’t more a matter of a real effort to avoid the cliff than playacting for the media.

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Democrats Can’t Avoid Fiscal Cliff Blame

For the past few days, the focus of coverage of the budget negotiations has been on the House Republicans who torpedoed Speaker John Boehner’s Plan B proposal. The hardliners determined to fight any tax increases, including those on millionaires, have helped create a situation where the deadline may well expire before Congress and the president can agree on a deal that will avoid an across-the-board tax increase as well as devastating spending cuts. Though their argument that the country’s problem is about spending, not taxes, is right, allowing the country to go over the fiscal cliff is irresponsible and will cost the GOP dearly in terms of public support. But now that the House has failed to advance Boehner’s compromise measure, it is up to the Senate to act and that means the media needs to turn its attention from the intransigence of a minority of House Republicans to the equally unproductive behavior of the majority of Democrats in the upper house.

For all of the country’s justified concern about the inability of the Republicans to make a deal, the fact remains that the Democratic-controlled Senate is even more of an obstacle to an accord. For Majority Leader Harry Reid and his party to act to avoid the fiscal cliff, he will have to do something that he has failed to do in the last three years: pass a budget plan of any kind. The Democrats have sat back and enjoyed the brickbats thrown at the GOP for their dysfunctional behavior, but have done nothing themselves to make a deal other than to play the role of cheerleaders for the White House’s class warfare rhetoric. With only days left for action to avoid the automatic enactment of measures that could potentially devastate an already weak economy, it’s time to for Reid and his caucus to put forward a bill that could actually pass. If not, their reliance on public opinion only blaming Republicans for the impending debacle may ultimately wind up a colossal misjudgment.

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For the past few days, the focus of coverage of the budget negotiations has been on the House Republicans who torpedoed Speaker John Boehner’s Plan B proposal. The hardliners determined to fight any tax increases, including those on millionaires, have helped create a situation where the deadline may well expire before Congress and the president can agree on a deal that will avoid an across-the-board tax increase as well as devastating spending cuts. Though their argument that the country’s problem is about spending, not taxes, is right, allowing the country to go over the fiscal cliff is irresponsible and will cost the GOP dearly in terms of public support. But now that the House has failed to advance Boehner’s compromise measure, it is up to the Senate to act and that means the media needs to turn its attention from the intransigence of a minority of House Republicans to the equally unproductive behavior of the majority of Democrats in the upper house.

For all of the country’s justified concern about the inability of the Republicans to make a deal, the fact remains that the Democratic-controlled Senate is even more of an obstacle to an accord. For Majority Leader Harry Reid and his party to act to avoid the fiscal cliff, he will have to do something that he has failed to do in the last three years: pass a budget plan of any kind. The Democrats have sat back and enjoyed the brickbats thrown at the GOP for their dysfunctional behavior, but have done nothing themselves to make a deal other than to play the role of cheerleaders for the White House’s class warfare rhetoric. With only days left for action to avoid the automatic enactment of measures that could potentially devastate an already weak economy, it’s time to for Reid and his caucus to put forward a bill that could actually pass. If not, their reliance on public opinion only blaming Republicans for the impending debacle may ultimately wind up a colossal misjudgment.

Wyoming Senator John Barrasso isn’t the only Republican who thinks that the Democrats, and in particular President Obama, are quite eager for the nation to go over the fiscal cliff. As he said yesterday on Fox News Sunday, doing so would accomplish two things that Democrats have longed to do: create a massive tax increase and cut defense, all the while letting Republicans take the blame. That was the president’s strategy last year during the debt ceiling negotiations during which he hoped to duplicate President Clinton’s success in shifting the culpability for the 1995 government shutdown to Newt Gingrich and his House majority. But the collapse of Boehner’s stratagem actually puts the onus on the Senate and the Democrats in a way it has not been throughout this crisis.

With no one paying much attention to the family squabble among House Republicans, the time has finally arrived when the Senate and its Democratic leaders are bound to start getting more coverage. If Reid does not pass something this week and pass on to the House a bill that will at least give the nation a short respite from the consequences of the fiscal cliff, then it will be impossible for anyone to pretend that what will follow is only a GOP problem. If so, then perhaps we are arriving at the moment when the assumptions about the budget standoff could turn out to be unfounded.

Their grandstanding about taxing rich people has allowed Democrats to avoid any real discussion about reform of the entitlements that are sinking the country. Neither the White House nor the Senate has put forward a coherent plan or a proposal worth voting on that addresses this issue, without which any talk of a long-term solution to the problem is impossible.

Republicans may have hit bottom last week when they sandbagged Boehner and effectively undermined any chance that he could force a more favorable compromise out of Obama. But Democrats are foolish to believe that no blame will ever attach to them just because the GOP has failed. Public cynicism about Congress and the political system is, at its heart, a bipartisan consensus about the governing class, not just anger about Tea Party intransigence. Unless Reid and the Senate Democrats do something this week to put the ball back into the House’s court, they, too, will shoulder plenty of the responsibility for what follows.

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America Edges Ever Closer to the Fiscal Cliff

Some thoughts on the Republicans pulling their Plan B tax bill from the House floor last night:

1. Speaker Boehner was embarrassed and is badly weakened. He may not be deposed since Majority Leader Eric Cantor and other key Republicans were by his side during negotiations, and they supported Plan B. Mr. Boehner is also generally well liked within his caucus. There’s no obvious person who could challenge him and win. And everyone knows the speaker was forced to play a bad hand. Still, this was a humiliation for Mr. Boehner. He may not recover from this vote of no confidence from his own members.   

2. It’s possible that a new deal emerges – but it would probably have to come from the Senate. And even if Harry Reid and Mitch McConnell were to find common ground – which is far from certain – a new plan would also need to pass in the House. And as last night showed, that simply may not happen.

3. House Republicans have now managed to put themselves into a situation in which if we do go over the “fiscal cliff,” early next year President Obama will propose tax cuts for somewhere around 98 percent of the American people. If House Republicans go along with Obama, then it may dawn on them that Plan B was a significantly better deal from their perspective, since it limited tax increases to those making a million dollars or more rather than whatever lower figure Obama will propose. 

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Some thoughts on the Republicans pulling their Plan B tax bill from the House floor last night:

1. Speaker Boehner was embarrassed and is badly weakened. He may not be deposed since Majority Leader Eric Cantor and other key Republicans were by his side during negotiations, and they supported Plan B. Mr. Boehner is also generally well liked within his caucus. There’s no obvious person who could challenge him and win. And everyone knows the speaker was forced to play a bad hand. Still, this was a humiliation for Mr. Boehner. He may not recover from this vote of no confidence from his own members.   

2. It’s possible that a new deal emerges – but it would probably have to come from the Senate. And even if Harry Reid and Mitch McConnell were to find common ground – which is far from certain – a new plan would also need to pass in the House. And as last night showed, that simply may not happen.

3. House Republicans have now managed to put themselves into a situation in which if we do go over the “fiscal cliff,” early next year President Obama will propose tax cuts for somewhere around 98 percent of the American people. If House Republicans go along with Obama, then it may dawn on them that Plan B was a significantly better deal from their perspective, since it limited tax increases to those making a million dollars or more rather than whatever lower figure Obama will propose. 

If House Republicans don’t go along with Obama, then they will vote to prevent tax cuts for 98 percent of the American people simply because tax cuts weren’t also given to the top income earners. I understand that Republicans will have supported tax cuts for 100 percent of the public rather than 98 percent. Still, the political effect of all this may well be that Barack Obama will have created a situation in which he’s viewed as the champion of tax cuts for the vast majority of Americans. That would be a stunning achievement by Obama and House Republicans, who could hardly have done more damage to themselves if they tried.

4. The results of this week – and especially if we go over the fiscal cliff – will be that the Republican Party will look increasingly extreme and adamantine. Even if you believe that characterization is completely or largely untrue and unfair, it exists, and conservatism has to take into account the world as it is.

Edmund Burke, in defining statesmanship, wrote, “We compensate, we reconcile, we balance. We are able to unite into one consistent whole the various anomalies and contending principles that are found in the minds and affairs of men.” That sensibility has been missing among some House Republicans, I think – many of whom seem to have convinced themselves that they made a stand on principle that will redound to their credit. They may be right, but count me skeptical. House conservatives got what they wanted, which is no deal and (perhaps) a trip over the fiscal cliff with their flag flying. If that happens, I suspect the GOP, conservatism, and the tax cutting cause will all suffer. Which may eventually underscore for them why prudence is such an important political virtue.

5. President Obama is far from blameless in all this. He never gave John Boehner enough in exchange for Boehner’s willingness to break with a decades-long GOP commitment not to raise tax rates. If Obama wanted to avoid going over the fiscal cliff, he once again showed that he is a fairly inept negotiator. If he does want to go over the fiscal cliff, he may become quite familiar with the axiom, “Be careful what you wish for.” Because as Bob Woodward put it, “This is the Obama era, it is [the president’s] economy. Speaker Boehner’s an important player and this is significant, but it is Obama’s job to lead and define — so if there re negative consequences here, particularly in the economy, it is going to be, ‘In the Obama era, things didn’t get fixed.’”

6. Quite apart from who deserves the most blame for where we are, there is something slightly depressing in terms of the failure to govern in a responsible and reasonable way. Our political system right now is not only unable to rise to the moment and confront the challenges we face; it seems to be badly broken and staggeringly incompetent. The lack of trust in, and growing cynicism toward, our governing institutions will only increase. And that is not a good thing for a self-governing republic.

In a terrific essay on the late, great James Q. Wilson, his former student John DiIulio, Jr. wrote, “During his last decade, Wilson worried more than he had previously about what, in the closing paragraph of his textbook [on American government], he described as ‘a decline in public confidence in those who manage…government. We expect more and more from government,’ [Wilson] observed, ‘but are less and less certain that we will get it, or get it in a form and at a cost that we find acceptable.’”

If Professor Wilson was alive today, I imagine his concerns would be even greater about the country he loved so much and so well. So should ours.

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The GOP Really Hits Bottom

Those Republicans who thought their party hit bottom on Election Day were wrong. Mitt Romney’s defeat was a blow, but the pitiful collapse of House Speaker John Boehner’s Plan B legislation on the budget showed that heading into his second term, President Obama’s opposition is so divided as to be rendered useless.

The importance of Boehner’s failure to keep his caucus relatively united, so as to strengthen his hand in negotiations to avoid having the nation go over the fiscal cliff, is not a minor story or one that will be soon forgotten in the 24/7 news cycle world. It is a signal to the Democrats that though they do not control the lower house of Congress—a not inconsiderable obstacle to President Obama’s hopes of implementing the liberal wish list of programs and legislation in his second term—neither do Boehner and the GOP leadership. That will not just make it easier for Obama to face down the Republicans in any confrontation. It leaves the Republicans prey to an ongoing dispiriting civil war between establishment types and Tea Partiers that will enhance the chances that the president will get more of what he wants in the next two years.

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Those Republicans who thought their party hit bottom on Election Day were wrong. Mitt Romney’s defeat was a blow, but the pitiful collapse of House Speaker John Boehner’s Plan B legislation on the budget showed that heading into his second term, President Obama’s opposition is so divided as to be rendered useless.

The importance of Boehner’s failure to keep his caucus relatively united, so as to strengthen his hand in negotiations to avoid having the nation go over the fiscal cliff, is not a minor story or one that will be soon forgotten in the 24/7 news cycle world. It is a signal to the Democrats that though they do not control the lower house of Congress—a not inconsiderable obstacle to President Obama’s hopes of implementing the liberal wish list of programs and legislation in his second term—neither do Boehner and the GOP leadership. That will not just make it easier for Obama to face down the Republicans in any confrontation. It leaves the Republicans prey to an ongoing dispiriting civil war between establishment types and Tea Partiers that will enhance the chances that the president will get more of what he wants in the next two years.

To state this fact is not to deliver a judgment that the objections to Plan B were either unprincipled or unsound economics. Boehner’s GOP critics are right when they continue to argue that Washington has a problem with spending, not taxes. Raising anyone’s taxes, even the millionaires that Boehner’s proposal targeted, won’t cure the deficit. Nor are they wrong to worry that the White House intends to renege on any promises to carry out the entitlement reform that is necessary to dealing with the problem at the heart of the country’s fiscal illness.

But in refusing even to give their leader their votes on behalf of what was nothing more than a negotiating ploy, they have created a situation where they have no effective leadership. Boehner must now crawl back to the negotiating table with Obama and accept an even less palatable compromise that will not have the support of most Republicans, or actually let the deadline expire. The latter would mean allowing taxes to rise on everyone in the country as well as the implementation of the sequestration process that will mean ruinous cuts in defense.

All this means that the Republicans will be heading into the New Year in an even weaker condition than they looked to be after losing the presidency, the Senate and having their House majority trimmed on Election Day. This sets them up for a lousy 2013 in which the president will have the whip hand over them throughout the coming months as he seeks to pass the next round of liberal legislation.

But as bad as this moment is for conservatives, it should be remembered that nothing in politics, even stinging election defeats and humiliating legislative debacles like the one they experienced last night, lasts forever. It is no accident that those Republicans expected to vie for the 2016 presidential nomination have been relatively quiet during the last weeks. Though Mitt Romney and now John Boehner have failed, there will be plenty of opportunities for people like Paul Ryan, Marco Rubio and others to shine during the next two years. There will also be many opportunities for the president to demonstrate the same poor judgment on both domestic and foreign issues that made his first term a lackluster affair. The GOP may have just hit bottom, but that also 

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If Plan B Failed, How is a Deal Possible?

The collapse of the House Republican leadership’s “Plan B” legislation this evening is being viewed first and foremost as a humiliating defeat for Speaker John Boehner and Majority Leader Eric Cantor. The proposal was supposed to be a clever tactic that would increase the pressure on President Obama and the Democrats since it would, at least theoretically, take the GOP off the hook for the country going over the fiscal cliff in the absence of a deal with the White House on spending and taxes. But Boehner didn’t have enough votes from his own caucus to back Plan B, even though it limited tax increases to those making over $1 million rather than the lower limits offered by the president in negotiations.

There are those who will argue that the collapse of Plan B will force Boehner back into negotiations with the president and create a situation where a grand budget deal would be possible. But the question that must be asked now is: if Boehner and Cantor could not whip up enough Republican votes for their own proposal, how is it possible that they could muster their support for an accord that would by definition be even less attractive to conservatives?

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The collapse of the House Republican leadership’s “Plan B” legislation this evening is being viewed first and foremost as a humiliating defeat for Speaker John Boehner and Majority Leader Eric Cantor. The proposal was supposed to be a clever tactic that would increase the pressure on President Obama and the Democrats since it would, at least theoretically, take the GOP off the hook for the country going over the fiscal cliff in the absence of a deal with the White House on spending and taxes. But Boehner didn’t have enough votes from his own caucus to back Plan B, even though it limited tax increases to those making over $1 million rather than the lower limits offered by the president in negotiations.

There are those who will argue that the collapse of Plan B will force Boehner back into negotiations with the president and create a situation where a grand budget deal would be possible. But the question that must be asked now is: if Boehner and Cantor could not whip up enough Republican votes for their own proposal, how is it possible that they could muster their support for an accord that would by definition be even less attractive to conservatives?

It is true that any deal struck between Boehner and Obama that would bridge the current gap between their positions on the budget would have considerable Democratic support and therefore enough votes to pass the House. But one has to ask how could Boehner’s leadership of the Republicans be sustained if on the most important piece of legislation before the Congress he relied more on Democrats than members of his own caucus?

It should be stipulated that the concerns voiced by members about Plan B are far from irrational. There is no reason to think a tax increase on anyone will boost the economy. Nor will soaking millionaires do much to cut the deficit. Nothing, other than the liberal ideology of the Democrats, would lead the country to raise taxes at a time when the economy is in such a fragile state.

But a failure to reach a deal with the White House would be a far greater catastrophe for the country than those tax hikes. Doing so would mean an across-the-board tax increase for everyone and mandate spending cuts on defense that would be ruinous.

Conservatives have a point when they say they were sent to Washington to stand up for their party’s principles, not to bow to liberal pressure. But it must also be understood that the people have spoken and, by electing a Republican House to govern alongside a Democrat Senate and president, have mandated that the two parties try to work together, no matter how much it bothers them.

Boehner seems to understand this, but the failure of his Plan B tactic demonstrates that such big picture thinking isn’t acceptable to the mindset of enough House Republicans to enable the speaker to prevail. That leaves him caught between allowing the country to go over the fiscal cliff—which would be blamed more on Republicans than the president—and a deal that most Republicans won’t buy. Either way, this is bad news for the speaker and the country’s fiscal health.

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The Right’s Latest Meaningless Purity Test

In a strange about-face today, FreedomWorks has decided to withdraw its support of House Speaker John Boehner’s “Plan B” a day after declaring its support for the plan. Yesterday Dean Clancy, legislative counsel for the group, wrote “Speaker Boehner: Congratulations, you are moving in the right direction. You woke up and realized you have the power to say No to the Left. Stay the course. Go all the way to the FreedomWorks plan, and you’ll have it made in the shade.” This comes as the Heritage Foundation continues to beat the drums against Boehner’s plan, calling it, “the latest unsatisfactory proposal put forward by Speaker John Boehner (R-OH) to avoid the fiscal cliff. Boehner’s plan would protect most Americans, except for millionaires, from a tax hike. But even this is a poor fix because it ignores the real problem: spending.” Heritage’s more flexible legislative arm (due to tax restraints on the non-profit Heritage Foundation), declared, “Heritage Action opposes ‘Plan B’ and will include it as a key vote on our legislative scorecard.” Club for Growth has also been forceful with its opposition to the plan, joining smaller Tea Party groups. 

While conservatives are eating their own over the plan, Senate Democrats have announced that they have no plans to vote on Boehner’s “Plan B,” even if it passes a House vote, as many are promising it will. The bill will therefore be dead on arrival, despite the fact that Senate Democrats voted for a similar plan almost exactly two years ago. There are no other plans under discussion from congressional Republicans, who are spending as much time fighting with conservative groups as they are with their Democratic counterparts. 

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In a strange about-face today, FreedomWorks has decided to withdraw its support of House Speaker John Boehner’s “Plan B” a day after declaring its support for the plan. Yesterday Dean Clancy, legislative counsel for the group, wrote “Speaker Boehner: Congratulations, you are moving in the right direction. You woke up and realized you have the power to say No to the Left. Stay the course. Go all the way to the FreedomWorks plan, and you’ll have it made in the shade.” This comes as the Heritage Foundation continues to beat the drums against Boehner’s plan, calling it, “the latest unsatisfactory proposal put forward by Speaker John Boehner (R-OH) to avoid the fiscal cliff. Boehner’s plan would protect most Americans, except for millionaires, from a tax hike. But even this is a poor fix because it ignores the real problem: spending.” Heritage’s more flexible legislative arm (due to tax restraints on the non-profit Heritage Foundation), declared, “Heritage Action opposes ‘Plan B’ and will include it as a key vote on our legislative scorecard.” Club for Growth has also been forceful with its opposition to the plan, joining smaller Tea Party groups. 

While conservatives are eating their own over the plan, Senate Democrats have announced that they have no plans to vote on Boehner’s “Plan B,” even if it passes a House vote, as many are promising it will. The bill will therefore be dead on arrival, despite the fact that Senate Democrats voted for a similar plan almost exactly two years ago. There are no other plans under discussion from congressional Republicans, who are spending as much time fighting with conservative groups as they are with their Democratic counterparts. 

Could there possibly be a bigger waste of time than what is currently taking place? Conservatives are at each other’s throats fighting over a plan that has no chance thanks to a Democratically controlled Senate and White House. Once upon a time, conservatives understood that the only chance at passing conservative legislation was by holding those branches of government, as Philip Klein pointed this out today in the Washington Examiner,

If all it takes to enact a conservative agenda is to hold one chamber of Congress, then why did conservative activists work so hard for Republicans to win control of the Senate? Why did they spill so much sweat in an effort to defeat Obama, even though it meant supporting Mitt Romney?

Klein goes on to say “Conservatives should acknowledge that some sort of compromise is inevitable. But that doesn’t mean they have to swallow anything that Boehner cooks up.” While these groups don’t have to go along with Boehner’s plan, if they plan to spend their precious political capital fighting “Plan B” they need to at least have an alternative that House Republicans can work with. While many of these groups have their own proposals, none stands a chance at passage through a Democratically controlled Senate, nor will Obama sign them.

During the primary season when opposition to Mitt Romney was at its peak, a group of conservatives started a group called the Not Mitt Romney coalition. The group spent its time fighting the eventual choice of Romney as the Republican nominee. From early on, it became clear that Romney was the most viable of all possible picks in a slim Republican field of candidates, and despite this, conservatives continued to fight his nomination instead of trying to find and recruit an alternative who would be more acceptable to their base (with the exception of the Weekly Standard‘s editor Bill Kristol, who famously spent months trying to draft reluctant Republicans into running). By the time Romney secured the nomination, a great deal of his campaign’s energy, money and political capital was spent battling his eventual nomination with fellow Republicans instead of building his case against Barack Obama. In campaign post-mortems, many of Romney’s top staff attributed their loss in part to this lengthy and nasty primary battle. 

If conservatives have learned anything from that primary experience, it’s that along with principled stands against objectionable legislation or politicians, they need to provide acceptable alternatives. It’s easy to declare that something or someone fails the conservative litmus test, but in order for Republicans to move past the label as the “Party of No” (which inevitably leads to plummeting approval ratings), they need to start offering reasonable solutions. 

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Heading Over the Cliff With Plan B?

With the House Republican leadership sticking to its plans to push through a Plan B tax and spending bill today, it’s an open question as to whether House Speaker John Boehner is really bluffing about his proposal as the party’s final answer to the White House in the fiscal cliff negotiations. Considering that there is no chance that the Democrats will allow the GOP plan to pass in the Senate and that reportedly even the staffs of the two sides are not talking, right now it is entirely possible that the standoff will result in there being no deal in place prior to the Christmas holiday next week. Or is it?

There are many observers in Washington and around the nation who are convinced that Plan B is merely an elaborate bluff designed to smoke more concessions out of an administration that for all of the president’s bluster is as desperate to avoid the ruinous tax increases and spending cuts that a failure to make a deal will bring as any Republican. But considering the enormous difficulty that Boehner is having in lining up the 218 votes from his own caucus that he will need to pass his legislation, imagining him going back to Republicans in the next couple of weeks to ask for their support for what is certain to be an even more unpalatable compromise deal seems a stretch. That means that it is entirely possible that Boehner and Majority Leader Eric Cantor mean what they say about putting off any further efforts to resolve the crisis until January. In other words, like it or not, both parties may actually be heading over the fiscal cliff with Plan B.

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With the House Republican leadership sticking to its plans to push through a Plan B tax and spending bill today, it’s an open question as to whether House Speaker John Boehner is really bluffing about his proposal as the party’s final answer to the White House in the fiscal cliff negotiations. Considering that there is no chance that the Democrats will allow the GOP plan to pass in the Senate and that reportedly even the staffs of the two sides are not talking, right now it is entirely possible that the standoff will result in there being no deal in place prior to the Christmas holiday next week. Or is it?

There are many observers in Washington and around the nation who are convinced that Plan B is merely an elaborate bluff designed to smoke more concessions out of an administration that for all of the president’s bluster is as desperate to avoid the ruinous tax increases and spending cuts that a failure to make a deal will bring as any Republican. But considering the enormous difficulty that Boehner is having in lining up the 218 votes from his own caucus that he will need to pass his legislation, imagining him going back to Republicans in the next couple of weeks to ask for their support for what is certain to be an even more unpalatable compromise deal seems a stretch. That means that it is entirely possible that Boehner and Majority Leader Eric Cantor mean what they say about putting off any further efforts to resolve the crisis until January. In other words, like it or not, both parties may actually be heading over the fiscal cliff with Plan B.

All along it has been President Obama rather than Boehner who has sounded like the side most ready to go to the brink. With polls showing the public blaming Republicans for the impasse and a second term already won, the president appeared to believe that he had the whip hand in any negotiation. Indeed, up until the last week when he offered to raise taxes only on those making more than $400,000 rather than $250,000, Obama had showed no sign of being willing to budge. After that, most pundits assumed that there would be further movement from both sides that would create a deal that would be somewhere between $400,000 and the $1 million income mark that Boehner has offered. But if the speaker had come to believe that there would be no more concessions from a president who thought he could bludgeon his opponents by further grandstanding and delegitimization of their position, then perhaps he came to the conclusion that it was time for him to shut down the talks and make the White House sweat.

Republicans are aware that they will be blamed in the short term for allowing an across-the-board tax increase and the impact this will have on the economy. But they also understand that any hopes for a successful second term for the president hinge on a deal that might boost the chances of a genuine recovery for the nation rather than the anemic revival it has experienced under Obama. This may be emboldening Boehner to think that it is he, and not the man who was just re-elected president, who is in control of the talks.

In doing so, Boehner may have put the ball back into the Democrats’ court. But it’s not easy to see how the GOP leadership team will sell a deal in which the president came closer to their position if they’re having such a hard time putting across Plan B.

If the end result of all this maneuvering is that no deal will be reached, it must be said that this is a disaster for the country. Allowing taxes to rise for all taxpayers is not just wrong (indeed, Republican hardliners are right when they say that any increase on anyone, no matter how rich, isn’t going to help the economy or do much to balance the budget), it will harm the nation’s economic health. The defense cuts that will result from such a failure will also be ruinous for national security. But Boehner may be counting on President Obama being more fearful of this than a Republican Party that may think it has nothing left to lose after their November defeat. Unless the president jumps first in the next couple of days in this game of chicken the two are playing, the fiscal cliff doomsday scenario may come to pass.

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Boehner’s Bluff Not Impressing Dems

This morning’s press conference by the Republican House leadership was supposed to give the impression that Speaker John Boehner is prepared to go to the brink on the fiscal cliff negotiations with the White House. The GOP has finally coaxed President Obama to budge a bit from his previous hard-line position on raising taxes on all those who earn more than $250,000 (the president has upped the total to $400,000) leading many journalists to write yesterday as if a deal between the two sides was a foregone conclusion. But Boehner knows he needs more than the minimal spending cuts offered by the Democrats if he expects his caucus to back a gut-wrenching compromise that will require them to sign on to tax increases that they think will hurt the economy as well as offend their principles. Thus, the speaker was in front of the cameras today insisting that he would pass a version of his own current position on the fiscal cliff that would only raise taxes on those earning more than $1 million and more drastic spending cuts than those envisioned by the White House that has zero chance in the Democrat-controlled Senate.

But Boehner’s problem is that Democrats are no more impressed by his Plan B bluff than his Tea Party colleagues are by the president’s slight movement toward a deal. With polls continuing to show that the public blames the GOP more than the president for the impasse over the budget, no one in the White House or the Democratic caucus thinks the speaker’s move is anything more than the negotiating tactic of a party that knows it is in a vulnerable position.

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This morning’s press conference by the Republican House leadership was supposed to give the impression that Speaker John Boehner is prepared to go to the brink on the fiscal cliff negotiations with the White House. The GOP has finally coaxed President Obama to budge a bit from his previous hard-line position on raising taxes on all those who earn more than $250,000 (the president has upped the total to $400,000) leading many journalists to write yesterday as if a deal between the two sides was a foregone conclusion. But Boehner knows he needs more than the minimal spending cuts offered by the Democrats if he expects his caucus to back a gut-wrenching compromise that will require them to sign on to tax increases that they think will hurt the economy as well as offend their principles. Thus, the speaker was in front of the cameras today insisting that he would pass a version of his own current position on the fiscal cliff that would only raise taxes on those earning more than $1 million and more drastic spending cuts than those envisioned by the White House that has zero chance in the Democrat-controlled Senate.

But Boehner’s problem is that Democrats are no more impressed by his Plan B bluff than his Tea Party colleagues are by the president’s slight movement toward a deal. With polls continuing to show that the public blames the GOP more than the president for the impasse over the budget, no one in the White House or the Democratic caucus thinks the speaker’s move is anything more than the negotiating tactic of a party that knows it is in a vulnerable position.

Republicans are right to argue that the president’s insistence on raising taxes on the wealthy has little or nothing to do with balancing the budget, let alone helping an anemic recovery. Their frustration with the White House’s refusal to seriously address the deficit via entitlement reform is similarly justified. But they also know that if the fiscal cliff is reached next month without a deal in place, it will be their party and not a newly re-elected president who will be blamed for the across-the-board tax increase that will be imposed on the middle class as well as the rich. Though the president has a lot to lose by allowing the standoff to sink an already fragile economy, Boehner is sensible to the fact that a failure to compromise would be a political disaster for the GOP.

That has left the speaker in the unenviable position of having to try to make the best possible deal with the president without setting off a full-scale revolt among House Republicans.

Thus, it is likely that talk about Plan B—a proposal that is sensible but which would be dead on arrival in the Senate—has more to do with the speaker orchestrating a process by which he can secure his party’s agreement to an unpopular deal.

But unfortunately for Boehner, it isn’t terribly likely that President Obama will make it easy on him and follow up his tax offer with a more far-reaching proposal about cuts. The looks on the faces of Boehner, House Majority Leader Eric Cantor and Whip Kevin McCarthy this morning reflected the desperation of men who understand they have very few cards left in their hands, not the bold defiance of a party that thinks it can defy the president’s bullying tactics. Obama has spent the last month since his victory over Mitt Romney acting as if he would be just as pleased by a failure to avoid the fiscal cliff as he would be by getting his way in the talks with the Republicans.

Boehner deserves some credit for being tough enough to get Obama to make some concessions, but given the weakness of his relative position to the winner of the presidential election, those Republicans who expect him to get more are probably being unrealistic.

Though a compromise, no matter how inadequate, will be seen as a victory for Obama, in the long run it is the nation as a whole that is the big loser in a negotiation that seems destined to ensure that the country not deal with entitlement reform and the out-of-control spending that is a strategic threat to America’s future. But in the short term, it appears that Boehner’s Plan is just the prelude to an unpalatable deal that will at least allow Republicans to avoid the blame for a tax increase on everyone.

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The Difference Between a Concession and a Confession

One of the arguments some intelligent conservatives are making is that if Republicans agree to increase rates on the top earners in America, it will do irreparable damage to the GOP. The basic case goes like this:

If Obama succeeds and ends up getting a confession from Republicans that tax cuts are the problem, tax cuts are the cause, what happens to the next Republican who campaigns on tax cuts? Not going to have a prayer.

Now it may well be that raising tax rates will do significant damage to the Republican Party. It may be substantively unwise. And I’m certainly sympathetic to Republicans not wanting to play a role in something they think is bad policy.

But here’s where I think this analysis is wrong.

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One of the arguments some intelligent conservatives are making is that if Republicans agree to increase rates on the top earners in America, it will do irreparable damage to the GOP. The basic case goes like this:

If Obama succeeds and ends up getting a confession from Republicans that tax cuts are the problem, tax cuts are the cause, what happens to the next Republican who campaigns on tax cuts? Not going to have a prayer.

Now it may well be that raising tax rates will do significant damage to the Republican Party. It may be substantively unwise. And I’m certainly sympathetic to Republicans not wanting to play a role in something they think is bad policy.

But here’s where I think this analysis is wrong.

If Republicans agreed to raise the rates on the top income earners in America, it would not be a “confession” that tax cuts are the problem. It would be a concession–one done in order to (a) keep something worse from happening (e.g., higher taxes on everyone, not just the top 2 percent of income earners; and/or the economic damage caused by going over the fiscal cliff) or (b) extracting something better in return (for example, entitlement reforms).

Whether the concession is worthwhile depends on the details of a deal. But conservatives should bear in mind that even a politician as principled as Ronald Reagan agreed to tax increases as part of broader deals. Indeed, Reagan agreed to what at the time was the largest tax increase in American history (the TEFRA tax).

It’s true that Reagan came to regret that decision. But the reason is that he never got the spending cuts he asked for in exchange for the tax increase he reluctantly agreed to. If he had, Reagan would have defended his decision on the grounds that the tax increases, which as a general matter he strongly opposed, were worth what he was able to get in return (spending cuts). And even though Reagan had agreed to tax increases in 1982, he and his party were still able to champion tax cuts in 1984. 

My guess is at the end of the day, Speaker Boehner will (wisely) not agree to raise the top rates, given how obstinate and unreasonable President Obama has shown himself to be. But even if Boehner does agree to an increase in the top rates, it will be a concession, not a confession.

Ronald Reagan agreed to tax increases and in the process didn’t ruin the GOP brand, and neither would John Boehner. 

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The High Cost of Dems’ Cheap Populism

Last week, I wrote about the fact that President Obama’s approach to taxes as part of the “fiscal cliff” negotiations is billed as taxing the rich but would end up hurting the poor and possibly deepening inequality. Policies built on the flimsy populism of “fairness”–at least as modern Democrats define it–are quite often devoid of economic common sense. What’s more, the Democrats seem to know this.

The New York Times offers a “News Analysis” today in which it is revealed that the Republicans are right on the merits of most of the arguments, but Obama and congressional Democrats have boxed themselves in by relentlessly demagoguing the issue. Here’s the Times:

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Last week, I wrote about the fact that President Obama’s approach to taxes as part of the “fiscal cliff” negotiations is billed as taxing the rich but would end up hurting the poor and possibly deepening inequality. Policies built on the flimsy populism of “fairness”–at least as modern Democrats define it–are quite often devoid of economic common sense. What’s more, the Democrats seem to know this.

The New York Times offers a “News Analysis” today in which it is revealed that the Republicans are right on the merits of most of the arguments, but Obama and congressional Democrats have boxed themselves in by relentlessly demagoguing the issue. Here’s the Times:

The mounting concentration of wealth is even more dramatic. A recent Economic Policy Institute study found that between 1983 and 2010 about three-quarters of all new wealth accrued to the wealthiest 5 percent of households. Over the same period, the bottom 60 percent actually became poorer.

Such figures are why some Democrats argue that even if the economy were to return to Clinton-era growth rates, its poor and middle class could not stomach a return to Clinton-era tax rates, at least not yet.

Why can’t the economy handle going back to Clinton-era tax rates? “In part, that is because the economy is still growing slowly, and tax increases have the potential to weaken it,” the Times explains. So higher taxes would indeed impede economic growth. But the Democrats only expect to protect the non-rich from tax increases for a limited time. They’re coming after the middle class too. The Times continues:

“It’s perfectly reasonable for the White House to begin collecting more revenue from folks who have done by far the best in pretax terms,” said Jared Bernstein of the Center on Budget and Policy Priorities, a former economist for Vice President Joseph R. Biden Jr. “But ultimately we can’t raise the revenue we need only on the top 2 percent.”

Well, you could solve some of the revenue problem by cutting spending. But the Democrats’ long-term strategy is to do the opposite. Republicans often complain that Obama wants a GOP House to cooperate on his terms, in order to essentially make the GOP the tax collectors for the welfare state. And as the Times notes, that’s exactly right:

“The goal is not just to make the tax code more progressive, but also to obtain adequate revenue to finance progressive spending programs,” said Peter Orszag, a vice chairman at Citigroup and a former White House budget director. “Making the tax code more progressive but locking into a vastly inadequate revenue base is not doing the notion of progressivity overall any favors.”

So the left can at least claim that they want your money in order to give it back to you in the form of benefits. It’s for your own good. Except, as the Times notes, it’s not:

The Congressional Budget Office has found that between 1979 and 2007, the top 1 percent of households saw their inflation-adjusted income grow 275 percent. For the bottom 20 percent, it grew just 18 percent, and federal tax and transfer programs also did less and less to reduce income inequality over that period.

To recap: Democrats don’t want to raise taxes on the middle class right at this moment, because those tax hikes would harm economic growth, especially for the middle class. But they do want to enact those damaging tax hikes on the middle class at some point, because they want to increase, not decrease, federal spending in the face of mounting debt and deficits. That might hurt the middle class, but the tax revenue gained from it would be spent in part on federal transfer programs intended to reduce inequality, though they won’t succeed in doing that either.

It’s almost as if near-term political gain and populist theater, and not economics, are driving Obama’s approach to policy.

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Nearly Half of Republicans Say Obama Has “Mandate” on Taxes

Another day, another bad “fiscal cliff” poll for the GOP. Bloomberg finds that nearly half of Republicans agree that the presidential election has given Obama a mandate to raise tax rates on the top income bracket:

The president goes into talks with Republicans amid broad public sentiment that his victory is a sign the electorate has spoken in favor of his positions on taxes and entitlements.

Sixty-five percent of Americans say the Nov. 6 results gave Obama a “mandate” on his proposal to raise tax rates on income over $250,000 and “to get it done.” Forty-five percent of Republicans agree.

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Another day, another bad “fiscal cliff” poll for the GOP. Bloomberg finds that nearly half of Republicans agree that the presidential election has given Obama a mandate to raise tax rates on the top income bracket:

The president goes into talks with Republicans amid broad public sentiment that his victory is a sign the electorate has spoken in favor of his positions on taxes and entitlements.

Sixty-five percent of Americans say the Nov. 6 results gave Obama a “mandate” on his proposal to raise tax rates on income over $250,000 and “to get it done.” Forty-five percent of Republicans agree.

At what point do Republicans get so fed up that they just give up and let the Democratic Party take the blame for the fallout from raising taxes during an economic downturn? For Senator Rand Paul, it sounds like that time has come

“I think what we should do first of all is put forward what we’re for. So if you’re in the House, the House leadership should put forward something that extends the Bush tax cuts forever and has significant spending cuts. And I think they pass that. If the Democrats won’t accept that and we’re unwilling to stay by our position, then I would say, let them pass a tax increase on the upper income folks, but let them do it with their votes not our votes. Republicans vote present in the House. Democrats can pass the tax increase with only Democrat votes. And then, the Democrats are the party of high taxes and the Republicans, we’re the party of lower taxes. And I think that’s the way it should be. …

Don’t give in by splitting the baby. Give in by voting present, let the Democrats pass an increase in the upper tax brackets. it comes over to the Senate, Republicans vote no, and it becomes a Democrat tax increase but not a Republican/Democrat tax increase, which I think is a mistake for Republicans.”

That would seem to pass Grover Norquist’s “no fingerprints” test. Republicans in the Senate will be attacked for voting no on a middle-class tax cut extension, but at least they won’t be saddled with blame over the top bracket tax hike. Also, the fact that Rand Paul is endorsing this proposal might make it a bit more palatable for Tea Party groups.

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A Clash of Mandates

All throughout the debate over Obamacare, polls showed the public opposed to the bill. That did nothing to stop Democrats from pushing the legislation through Congress, of course, and voters responded by staying true to their word: they voted out congressional Democrats in historic numbers in the next election. Democrats and the national media generally ignore inconveniences like voters when the opportunity arises to pass far-reaching legislation, but that instinct has kicked in on other matters as well.

For example, the New York Times has discovered that the current “fiscal cliff” negotiations pose something of a problem for democratically elected representatives whose constituents don’t want them to raise taxes. It turns out that Democrats are right when they say “elections matter”–though not only the presidential election. Now that the push for some tax increases as part of a final deal is gaining momentum, Republicans elected by voters who oppose such tax hikes are caught between representing the will of their electors and what liberal editorial boards tell them is the good of the country:

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All throughout the debate over Obamacare, polls showed the public opposed to the bill. That did nothing to stop Democrats from pushing the legislation through Congress, of course, and voters responded by staying true to their word: they voted out congressional Democrats in historic numbers in the next election. Democrats and the national media generally ignore inconveniences like voters when the opportunity arises to pass far-reaching legislation, but that instinct has kicked in on other matters as well.

For example, the New York Times has discovered that the current “fiscal cliff” negotiations pose something of a problem for democratically elected representatives whose constituents don’t want them to raise taxes. It turns out that Democrats are right when they say “elections matter”–though not only the presidential election. Now that the push for some tax increases as part of a final deal is gaining momentum, Republicans elected by voters who oppose such tax hikes are caught between representing the will of their electors and what liberal editorial boards tell them is the good of the country:

“We ran aggressively talking about taxes and growth and spending, as did the president,” said Representative Sean P. Duffy, a first-term Republican from Wisconsin, who despite being a top target of Democrats easily won re-election by 12 percentage points. “The president keeps talking about his mandate. Well, he doesn’t have a mandate in the Seventh District.”…

“My constituents want me to stand firm on cutting spending. I campaigned on that issue. That’s why they elected me,” said Representative Ted Poe, Republican of Texas, who won re-election with 65 percent of the vote. “I don’t see any scenario where raising tax rates, in any combination of compromise, will solve our problem.”

Of the 234 House Republicans who will sit in the 113th Congress, 85 percent won re-election with 55 percent of the vote; more than half of next year’s House Republican Conference won more than 60 percent. And virtually every one of them ran on holding the line against tax increases and the Obama agenda.

This is not a simple problem for the lawmakers; polls do indeed show national support for some tax hikes. In Duffy’s case, Obama did win his state running on a platform of soaking “the rich.” Duffy can honestly respond that he won his district by promising to be a check on Obama’s agenda, and that his district is what matters to him, since he doesn’t represent the whole state.

I’m betting you can guess what the Times wants him to do:

Given the electoral dynamics, the lawmakers who are broaching the possibility of raising tax rates as a way to strike a deal and prevent the possibility of a recession are beginning to appeal to House members with a term not heard often in the House — the national interest.

It’s the “national interest” vs. those pesky voters. The article does offer some clarity, though. This, combined with the Politico/George Washington University poll released yesterday, proves the utter silliness of the Democrats’ argument that Republicans are simply doing the bidding of anti-tax activist Grover Norquist. Sure, Republicans have signed a pledge not to raise taxes, but their voters haven’t–and they still don’t want the tax hikes. In fact, not only did they not sign a pledge to Norquist, they generally don’t even know who he is. From the Post’s Chris Cillizza:

For all the focus in Washington on Americans for Tax Reform’s Grover Norquist, he remains an almost entirely unknown figure nationally.  More than six in 10 (61 percent) of those tested had never heard of Norquist while another 15 percent had no opinion of him.  Among those who did have an opinion, eight percent regarded him favorably while 18 percent viewed him in an unfavorable light.  The idea that the fiscal cliff fight is a proxy war over Norquist then seems far-fetched.

Well, yes. It does more than seem farfetched. It was ever thus. But you didn’t need a poll to tell you that. Just listen to Norquist himself. When he was criticized by Senator Tom Coburn over the pledge, Norquist said: “He took the pledge — not to me, to the voters.” And as Ezra Klein reported here, the pledge helps Republicans get elected–and keeping the pledge helps them stay elected. If opposing tax increases were a losing issue with voters the pledge simply wouldn’t have that effect.

This is not an argument on behalf of taking the pledge. But when discussions of the pledge and of Republicans (especially in the House) who are reluctant to raise taxes exclude the voters, they miss the point. It may or may not be the right thing to do to raise taxes as part of the effort to stave off the fiscal cliff. But as even the Times has come to realize, Obama is not the only one with a mandate.

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Gallup: Americans Want Fiscal Cliff Compromise

The latest Gallup poll has two interesting, and seemingly contradictory, findings:

President Barack Obama and Speaker of the House John Boehner met at the White House on Sunday, but there has yet been no announcement of a negotiated agreement to avoid the mandated sequestration of government funds for defense and other federal spending, and the increase in tax rates for most taxpayers.

Seventy-three percent of Democrats want their leaders to compromise, little changed from 71% last week. But Republicans and independents express more widespread interest in compromise than they did last week — with Republicans moving from 55% to 67% in favor of compromise, while independents moved from 61% to 70%.

So Americans seem to want compromise — in theory. In reality, President Obama is still getting much higher approval ratings than Republican leaders in congress in the same Gallup poll (48 percent compared to 26 percent), even though he has been the party most unwilling to compromise. 

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The latest Gallup poll has two interesting, and seemingly contradictory, findings:

President Barack Obama and Speaker of the House John Boehner met at the White House on Sunday, but there has yet been no announcement of a negotiated agreement to avoid the mandated sequestration of government funds for defense and other federal spending, and the increase in tax rates for most taxpayers.

Seventy-three percent of Democrats want their leaders to compromise, little changed from 71% last week. But Republicans and independents express more widespread interest in compromise than they did last week — with Republicans moving from 55% to 67% in favor of compromise, while independents moved from 61% to 70%.

So Americans seem to want compromise — in theory. In reality, President Obama is still getting much higher approval ratings than Republican leaders in congress in the same Gallup poll (48 percent compared to 26 percent), even though he has been the party most unwilling to compromise. 

It shows you what the GOP is up against here. Even though House Republican leadership has been open to concessions on tax revenue, it still can’t shake the “obstructionist” label. And even though President Obama has refused to take any step toward the GOP position, he’s still viewed as more willing to compromise. Republicans are dealing with more than just a political problem — they’re dealing with a deep-seated image problem, created largely by the media. Before they can persuade the public that they’re right about taxes, they’re going to have to tackle their public image issues.

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What If Conservatives Have Lost the Argument?

The debate over the “fiscal cliff” is an important tactical one and could have widespread political ramifications. There are complicated issues to consider. Should the Republicans give in to Mr. Obama’s demand that we raise the top tax rates? If so, what should they demand in return? If they don’t get it, is it more prudent to retreat in order to fight another day on more advantageous ground for the GOP? Or should Republicans be willing to go cliff diving with the president, confident that in the end Obama will own any future recession?

Whatever the answer to these tactical questions, the fiscal cliff raises a broader question for conservatism: What do you do when you’ve lost an argument, at least for now? In the post-election ABC News/Washington Post poll, for example, 60 percent of respondents said they support raising taxes on incomes over $250,000 a year. That’s not surprising, since to the degree that there was a centerpiece to the president’s economic argument during the 2012 election, it was to do just that. Mr. Obama was not only re-elected on that platform; he won by a comfortable margin. In the Senate, Democrats gained two seats while in the House they gained eight seats.

So here’s something to consider. Assume for the sake of the argument that this debate has been engaged and adjudicated by the public–and the public prefers the liberal solution (raising taxes on the “rich” in the name of “fairness”). Does the conservative movement, in order to maintain its strength and appeal, make peace with the public’s view? Or attempt to change it? And if so, how?

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The debate over the “fiscal cliff” is an important tactical one and could have widespread political ramifications. There are complicated issues to consider. Should the Republicans give in to Mr. Obama’s demand that we raise the top tax rates? If so, what should they demand in return? If they don’t get it, is it more prudent to retreat in order to fight another day on more advantageous ground for the GOP? Or should Republicans be willing to go cliff diving with the president, confident that in the end Obama will own any future recession?

Whatever the answer to these tactical questions, the fiscal cliff raises a broader question for conservatism: What do you do when you’ve lost an argument, at least for now? In the post-election ABC News/Washington Post poll, for example, 60 percent of respondents said they support raising taxes on incomes over $250,000 a year. That’s not surprising, since to the degree that there was a centerpiece to the president’s economic argument during the 2012 election, it was to do just that. Mr. Obama was not only re-elected on that platform; he won by a comfortable margin. In the Senate, Democrats gained two seats while in the House they gained eight seats.

So here’s something to consider. Assume for the sake of the argument that this debate has been engaged and adjudicated by the public–and the public prefers the liberal solution (raising taxes on the “rich” in the name of “fairness”). Does the conservative movement, in order to maintain its strength and appeal, make peace with the public’s view? Or attempt to change it? And if so, how?

These questions are too large to tackle in a single post. I simply want to highlight a temptation all of us in politics face, which is to assume that because we hold a certain view, a majority of the public does, too. Those who hold this mindset usually fall back on an explanation that goes something like this: Republican politicians simply didn’t make sufficiently forceful and articulate arguments. If they had, the public would flock to our side since, after all, the arguments are all on our side.

The people who take comfort in this explanation usually reside in the “we have a communications problem” school. They lament the fact that we don’t have another Ronald Reagan to articulate conservatism and if we did, all would be right with the world once more.

I’m partially sympathetic to this view, since it would be a mistake to underestimate the importance of quality candidates in advancing an intellectual cause. At the same time, it’s unwise to pin one’s hopes on producing, election after election, a candidate who possesses a once-in-a-lifetime set of skills. And Reagan himself, by 1980, had made peace with major elements of the New Deal (something he had not done in 1964).

As for the here and now: I’m actually conflicted as to what strategy Republicans ought to adopt in their battle with the president over the fiscal cliff, since I believe there are real downsides to capitulating on raising taxes on the top income earners. But however this issue resolves itself, conservatives should be careful not to assume that the problems we face are merely (or mostly) rhetorical. 

It may be that a majority of the public, having heard both sides of the argument, believes that upper-income people are under-taxed. If that’s the case, it would be a significant error for conservatives to assume we simply need to make the same arguments, only louder, with more passion, and with more charts and graphs. It may be that we have to reframe the issue. Or it may be that we have to accept that waging the fight on this ground is injurious to the larger conservative cause. This is a discussion conservatives need to have in a calm, empirical way, resisting the impulse (on all sides) to either purge or impugn motivations — and to bear in mind that if conservatives give in to Obama’s demands, it may be a mistake but it wouldn’t be a violation of a high principle. Deciding on whether the top tax rate should be 35 percent or 39.6 percent, or somewhere in between, is a prudential, not  quasi-theological, argument. 

A final, related point: Conservatives have to be alert to shifting circumstances. Today we face challenges — including wage stagnation, lack of social mobility, globalization, income inequality, fracturing families, and an entitlement crisis — that are in some respects quite different, or at least more acute, than the ones we faced in 1980, when the threats we faced included soaring interest rates, high inflation, and a top marginal rate of 70 percent. This doesn’t mean that the arguments about tax rates and the size of government are passé. But it does mean conservatism has to take into account a realistic assessment of the sentiments of the public — not in order to bow before them, but to be better able to shape them.

This is not, as some might suggest, an argument to abandon conservatism. It’s rather an argument to revivify it.

 

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RE: Poll: 60% Support Tax Hikes on the Wealthy

I certainly agree with Alana that the Republicans are in a tough spot. But I’m not sure how valid any of these polls about public opinion on the issue are. Unlike when the choice is either A or B, as those are the only two candidates in an election, polls on public issues depend crucially on exactly how they are worded. And even when worded in a neutral manner (not an easy thing to achieve even when the pollster is trying to be honest), I’m not sure they mean that much in terms of political consequences down the road.

No matter what the Republicans do, the permanent Obama campaign—sorry, I mean the mainstream media—will hammer them. So they might as well do what’s right.

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I certainly agree with Alana that the Republicans are in a tough spot. But I’m not sure how valid any of these polls about public opinion on the issue are. Unlike when the choice is either A or B, as those are the only two candidates in an election, polls on public issues depend crucially on exactly how they are worded. And even when worded in a neutral manner (not an easy thing to achieve even when the pollster is trying to be honest), I’m not sure they mean that much in terms of political consequences down the road.

No matter what the Republicans do, the permanent Obama campaign—sorry, I mean the mainstream media—will hammer them. So they might as well do what’s right.

I’m not surprised that 60 percent want taxes raised on the wealthy. This is taxing the man behind the tree, in Senator Russell Long’s famous description of the art of taxation, as almost no one considers himself to be “rich.”

Equally, I am not surprised that 64 percent want to raise taxes on large corporations. I wonder what percentage of that 64 percent know that the United States already has the highest corporate taxes in the world? Maybe 10 percent? The average man in the street has little understanding of the realities of such public policy questions, which obsess only the chattering classes. Polling them doesn’t provide useful information, it only provide ammunition for one side or the other to use.

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Poll: 60% Support Tax Hikes on the Wealthy

More bad fiscal cliff news for Republicans, from the Politico/GWU Battleground Poll today:

A new POLITICO/George Washington University Battleground Poll finds that 60 percent of respondents support raising taxes on households that earn more than $250,000 a year and 64 percent want to raise taxes on large corporations.

Even 39 percent of Republicans support raising taxes on households making more than $250,000. Independents favor such a move by 21 percentage points, 59 to 38 percent.

Only 38 percent buy the GOP argument that raising taxes on households earning over $250,000 per year will have a negative impact on the economy. Fifty-eight percent do not.

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More bad fiscal cliff news for Republicans, from the Politico/GWU Battleground Poll today:

A new POLITICO/George Washington University Battleground Poll finds that 60 percent of respondents support raising taxes on households that earn more than $250,000 a year and 64 percent want to raise taxes on large corporations.

Even 39 percent of Republicans support raising taxes on households making more than $250,000. Independents favor such a move by 21 percentage points, 59 to 38 percent.

Only 38 percent buy the GOP argument that raising taxes on households earning over $250,000 per year will have a negative impact on the economy. Fifty-eight percent do not.

As much as I’ve held out hope that the Wall Street Journal and others are right that sticking to principles is the correct move, what do you do if the public disagrees? Maybe the GOP needs to come to terms with that. This doesn’t mean conservatives are wrong on the tax issue, it just means there may not be a way to win this political battle at the moment.

At the Weekly Standard, Bill Kristol makes a very persuasive case for that:

The Journal editors believe that after January 1, when taxes will have gone up for everyone, House Republicans will block Democratic legislation that would cut taxes—that would restore the lower 2012 rates for the vast majority of taxpayers, fix the Alternative Minimum Tax, and for that matter would probably offer a compromise on dividends and the death tax better than what will be the new dividend rate of 39 percent and death tax of 55 percent with a $1 million exemption.

Will Republicans really oppose such legislation? President Obama will be beating the drums for this tax cut. Senate Democrats will pass this tax cut. If Senate Republicans vote against it, it won’t be “Senate Democrats running for re-election in 2014” who will have a tax hike on their resumes. It will be Senate Republicans who will have voted against cutting taxes. And if House Republicans block such legislation, it will be they, and they alone, insisting on higher taxes.

Of course they won’t. Republicans will fold with lightning speed after we go over the tax cliff on January 1. Which is why the third of the Journal editorial’s three key paragraphs is moot. If we go over the cliff, there won’t be damage to Obama’s chances of second-term success. Quite the contrary. What Republicans will have done is to make Democrats the party of tax cuts and Obama a president fighting for economic growth.

As I say, it won’t happen. Most Republicans will go along soon after January 1 with what will now be the Democrats’ tax cutting agenda. If the House Republicans now follow the Wall Street Journal editors over the cliff, the only effect, I’m afraid, will be to turn a manageable tactical retreat in December into a panicked strategic rout in January.

The WSJ board is right that GOP infighting isn’t helpful for negotiations. But two facts remain: 1.) Americans largely agree with Obama on tax hikes; and 2.) Republicans will be blamed if the country goes over the cliff.

Because of that, Obama shows no sign of backing down, nor does he need to. Even if Republicans stop fighting amongst themselves, Obama is not stupid. He knows the impossible position they’re in — heads he wins, tails they lose. The question is, which loss is the least damaging for the GOP? As the Israelis say, “don’t be right, be smart.” Republicans might want to keep that one in mind.

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