Has leverage switched to Republicans on spending cuts?

posted at 12:11 pm on January 4, 2013 by Ed Morrissey

Peter Orszag argued as much yesterday, and Byron York continues the same argument today.  By splitting the fiscal cliff into two different debates — one on taxes, the other on spending and debt — Republicans shed their worst political position with a one-off concession and can now concentrate on a political strength.  Or at least that’s what they hope:

Their thinking was this: The GOP was on the wrong side of the polls in the battle over raising taxes on the highest earners. Surveys showed substantial public support for the president and Democrats on that issue. But Republicans are on the right side of the polls in the battle over fiscal responsibility. The GOP, the party trying to put sensible limits on Obama’s runaway spending, is better positioned to make the case for cuts.

“We’re making a hard pivot to spending,” says a senior GOP Senate aide. “Our view is that the revenue question has now been settled. It’s behind us. Now we fight on spending, and we’ve got two good opportunities to do so coming up — the debt limit and the continuing resolution.”

The Republican strategy is more than just positioning. It’s the right thing to do. Everybody knows Obama’s tax increases will do little to reduce deficits in coming years; they’ll add about $60 billion in revenue a year, turning a $1.2 trillion deficit into a $1.14 trillion deficit. And everybody knows entitlement spending is on its way to eating the entire federal budget. It has to be reduced or disaster awaits.

Byron notes that Barack Obama will try to get more tax increases in the next round too, demanding the deduction elimination the GOP proposed in this round as an alternative to raising rates.  However, Obama undermined his own argument on that point repeatedly over the last few weeks by deriding it as too little to make an impact on the deficit.  Ever since September 2011, Obama has insisted that the so-called Buffett Rule rates would make the system “fair” and relieve the deficit problem.  In two months, it will be clear that revenues aren’t rising enough to even make a noticeable dent in the trajectory of the deficit, and that will further strengthen the GOP’s hand.

Jim Geraghty also points out that the tax-rate argument has been the Democrats’ only answer for the deficit since Obama was a backbencher in the Illinois state legislature:

Looks like a pretty slam-dunk counter-argument for Republicans: “Why the hell are you guys talking about raising taxes on the richest Americans again? We just did that at the beginning of the year! We haven’t even reached the annual tax-filing deadline of April 16, and your calcified one-track minds are coming back with the exact same policy recommendations that you insisted would fix the problem before!”

And just think, this debate will occur as everyone in America sees their paychecks get 2 percent smaller (at least on the first $110,000 of income) because of the expiration of the temporary reduction in the payroll tax from 6.2 percent to 4.2 percent. (Here’s one Democratic Underground commenter exclaiming with surprise, “My paycheck just went down by an amount that I don’t feel comfortable with.”)

One of the fundamental reasons that “raise taxes on the rich” is less popular than Democrats want is the public’s well-founded wariness of just what income level constitutes “rich” in the eyes of lawmakers.

Obama is proudly proclaiming that he saved the middle class from a tax hike, and that he only raised taxes on the rich. But since most voters perceive their taxes in aggregate – that is, what’s left on their pay stub after everybody takes their bite – they’ll probably perceive the opposite, that an income tax hike supposedly targeting the rich made their paychecks 2 percent smaller. Thus, they’ll be even more skeptical than usual, since they’ll think the last tax hike on “the rich” hit them instead.

So the Republicans have better leverage for the spending fight in two months.  That doesn’t mean they’ll have all the leverage, or even most of it, since Obama and Harry Reid outnumber John Boehner.  However, there won’t be any more appetite for tax hikes, especially if the economy takes a hit from the rate increases and other changes passed on Tuesday.  That’s what Investors Business Daily expects to see — and they’re not alone, either:

Let’s look at what Obama has managed to achieve with his $620 billion tax hike on the wealthy and the boost in the payroll tax rate.

• They’ll hurt the economy. Economists are admitting the fiscal deal will slow the already sluggish economic growth.

Moody’s Analytics chief economist Mark Zandi says the higher taxes on the wealthy and the increase in payroll taxes will shave close to 1 point off GDP growth this year and result in 600,000 fewer new jobs.

Pantheon Macroeconomic Advisors chief economist Ian Shepherdson figures the deal will cut GDP by 1.5 points. And Gallup’s chief economist Dennis Jacobe says the deal has created a “higher probability of recession — just the opposite of what fixing the fiscal cliff was intended to do.”

• They’ll do nothing to fix the debt crisis. Even with the Obama tax hikes, deficits are likely to reach nearly $1 trillion this year and top $6 trillion over the next decade (see chart). Worse, by slowing economic growth, the tax increase makes tackling the nation’s debt crisis all the harder. Getting deficits under control means tackling the massive growth in entitlement spending. But Obama still hasn’t put forward a credible plan to do so. If he fails again, he’ll pay a price with the public. And if he does put forward a plan, he’ll find himself at war with his own party.

The problem that underlies both debates is the national debt, which is soaring to Greece levels and shows no sign of abating under Obama’s perpetual trillion-dollar annual deficits.  Michael Ramirez captures the issue perfectly for Investors Business Daily, and warns Obama that it may not be safe to go back into the water.  Obviously, Michael is a big fan of Jaws:

As Glenn Reynolds is fond of writing, that which cannot be sustained … won’t be.

Also, be sure to check out Ramirez’ terrific collection of his works: Everyone Has the Right to My Opinion, which covers the entire breadth of Ramirez’ career, and it gives fascinating look at political history.  Read my review here, and watch my interviews with Ramirez here and here.  And don’t forget to check out the entire Investors.com site, which has now incorporated all of the former IBD Editorials, while individual investors still exist.


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