Here are some glass-half-full observations on last night’s McConnell-Biden fiscal deal from an inveterate optimist.
Raising taxes on those who are already paying roughly double their fair share, while leaving everyone else’s taxes the same, is lousy public policy. But from the Republicans’ point of view, it may be good politics. For the last four years, the Obama administration has run up unprecedented deficits, adding more than $4 trillion to the national debt. How has President Obama justified such profligacy? He has been a broken record: his mantra is that we just need to increase taxes on the “wealthy,” restoring them to Clinton-era rates, and then everything will be fine. He has never offered any other plan either to raise revenue, or to control spending. Raising taxes on upper-income taxpayers is the only card in his deck.
Knowledgeable observers always knew that nothing Obama said about fiscal matters made any sense, because raising income tax rates on the “rich” barely makes a dent in the deficit. But we learned in November that most voters are not knowledgeable. President Obama won re-election, and now he has gotten his way: marginal income tax rates on high earners are being restored to Clintonian levels (assuming the House goes along). Isn’t that, for the Democrats, an ominous development? Their call for higher taxes on the rich was never a serious policy proposal; it was always sheer demagoguery. It was a politically popular way to deflect all meaningful talk about the budget.
But what happens now that Obama has gotten his way? It will soon become apparent that the fiscal cliff deal, including precisely the tax increases that Obama has been demanding for four years, makes hardly a dent in the deficit. At best, it will reduce the deficit by five or six percent. We will continue to run up deficits of close to $1 trillion a year, and the national debt will continue to grow, as Obama has always intended. This fact can’t be hidden; it will be reported. Journalists who have pulled their punches in the past because they wanted Obama to be re-elected will now begin to ask, what are we going to do about the deficit and the debt? At some point, perhaps sooner rather than later, interest rates will begin to rise, at which point the debt issue will become a crisis. And Republicans will say: we told you so.
The Democrats will have only three choices: they can try to raise taxes on the “rich” even higher. But raising them to 100% wouldn’t deal with the deficit, even if you assume all those rich people are willing to work for free. The second option is to restrain federal spending. The Democrats would rather die than do that. The third option is to try to raise taxes on all those millions of Americans who aren’t rich. That is what the Democrats will do once the moment arrives when they can no longer ignore the trillions of dollars in debt they are inflicting on our children. That will be, politically, a very bad moment for the Democrats and a very good one for the Republicans, who can offer the alternative of less spending and who will have been proved right with respect to the biggest policy debate of recent years.
All of this is another way of saying that, with the Democrats’ BS about raising taxes on the rich out of the way, we can have a rational debate about the country’s fiscal future. And that is a debate the GOP can win, as most voters continue to believe that it is better to cut spending than to raise taxes on them. So let’s not despair: the post-cliff landscape may well prove favorable to the sorts of reforms that have been impossible for the last four years.
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