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Fiscal Cliff: Decoupling Conservatives from Their Core Principles

Posted By J.D. Foster, Ph.D. On December 14, 2012 @ 5:36 pm In Obamacare | Comments Disabled

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There are many ways to surrender—and some congressional Republicans seem bent on exploring them all.

In the debate over the fiscal cliff, the President’s position is simple: The Republicans must capitulate on income tax rate hikes, and all other serious issues are not up for discussion.

Never mind that Obama already raises taxes on upper-income taxpayers through the 3.8 percent Medicare surtax imposed under Obamacare. Never mind that the tax hikes will weaken an economy stumbling so badly that the Federal Reserve announced it would double its efforts [2] to keep the economy from recession. Never mind that Obama’s approach likely puts the kibosh on any hopes for individual or corporate income tax reform. Never mind that the revenues from the tax hikes [3] are a small drop in a very big bucket compared to projected budget deficits.

In his view, President Obama ran for re-election on, and now has a mandate for, raising income tax rates. In fact, his mandate is solely to continue to press his case. Ours is not a parliamentary system, and Obama is not the prime minister. And so he faces the pesky reality that House Republicans ran opposing higher tax rates and that they, too, were returned to Washington in the majority to press their case. Their mandate is no greater, but certainly no less, than Obama’s.

House Speaker John Boehner (R–OH) made a terrible mistake [4] in both policy and approach in offering up a plan to resolve the fiscal cliff featuring a huge tax hike coupled with woefully inadequate spending cuts and entitlement reforms. Obama’s response [5]? Nothing. The silver lining is that at least Boehner made clear, then and since, that raising tax rates is off the table [6].

Now, however, worrisome rumors of two different “decoupling” plans are swirling through the halls of Congress. Both plans constitute a clear path toward surrender on conservative principles.

The gist of the first “wash thy hands” plan is simple enough. Some tax hikes threatening on January 1 fall on upper-income taxpayers and small businesses, but the vast bulk of the tax hikes fall on everyone else. So the House would bring up two distinct bills for votes. The first bill would prevent the tax hike for upper-income individuals and small businesses, papered over with certain whimperings as to how the issue could be considered again as tax reform; the second would prevent a tax hike for everyone else.

Presuming both bills passed the House, the Senate would then take them up. As the second bill—the second, everyone-else bill—is essentially what the Senate has already passed, its repeat passage is assured.

Not coincidentally, the Senate has already voted to allow taxes to increase for small businesses and upper-income taxpayers and would presumably do so again. Thus the President gets his tax rate increase and the wobbly Republicans hope they can wash their hands of the matter.

True, Republicans who oppose raising taxes could vote to stand by their principles, but this maneuver succeeds only if the House Republican leadership permits it.

The second “protect small business” plan would decouple in a different way. Small businesses usually pay tax through the individual income tax. The idea is to tax them separately, thus allowing income tax rates to rise for upper-income taxpayers while keeping rates where they are for small businesses.

The technical problems arising from the “protect small business” decoupling plan are obvious and likely prohibitive for now. The greater problem with the “protect small business” plan is not the decoupling itself as much as that its sole purpose is, once again, to pave the way for Republicans to capitulate on income tax rates.

Taking a step back, both decoupling approaches demonstrate that, once again, Republicans are busy negotiating with themselves the terms of their surrender. The President is rightly blamed for not negotiating at all, but under the circumstances, with the other side so busy finding creative new ways of caving in to his demands, Obama’s stonewalling is equally irresponsible and understandable.

Aside from his one great mistake in offering up his own tax hike, Speaker Boehner has to his credit repeatedly nailed the central issue in the entire fiscal policy debate—an issue that would surely get more attention if so many Republicans weren’t falling over themselves in a rush to wave the white flag: Mr. President, where are your entitlement reform proposals? We’re still waiting.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2012/12/14/fiscal-cliff-decoupling-conservatives-from-their-core-principles/

URLs in this post:

[1] Image: http://blog.heritage.org/wp-content/uploads/Boehnerfiscal.jpg

[2] the Federal Reserve announced it would double its efforts: http://blog.heritage.org/2012/12/12/qe4-another-big-step-down-a-dangerous-road/

[3] the revenues from the tax hikes: http://www.washingtontimes.com/news/2012/nov/28/foster-feel-good-tax-hikes-are-bad-economic-policy/print/

[4] House Speaker John Boehner (R–OH) made a terrible mistake: http://blog.heritage.org/2012/12/03/fiscal-cliff-house-republican-proposal-abandons-core-principles-gains-little/

[5] Obama’s response: http://blog.heritage.org/2012/12/04/white-house-speeds-toward-fiscal-cliff-declining-house-republicans-request-for-terms/

[6] raising tax rates is off the table: http://abcnews.go.com/Politics/boehner-exclusive-raising-tax-rates-unacceptable-revenue-table/story?id=17672947

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