Jonathan Chait

The Root Cause Of The GOP's Huge Mistake

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Pulling back a bit, there's a pretty simple reason why the Republican budget is so toxic. Republicans have a programmatic view of the federal government that is shared by just a tiny minority of Americans. This is not an insurmountable problem. There are many ways around it -- you can try to organize politics around foreign policy or issues of personal character, or you can try to keep the debate over taxes and spending on the level of abstraction, where Republicans are on firmer ground.

One favored tactic has been to keep the issues of taxes and spending separate. Ronald Reagan and George W. Bush passed large tax cuts that mathematically implied the need for cuts in popular spending programs. But they fiercely denied the implication, and left the work of spending cuts for the future, so that the tax cutting could proceed without any acknowledgement of the priorities it required. Indeed, Republicans understood very clearly that obscuring the trade-off was the entire key to gaining public acceptance:

Disillusioned former Treasury Secretary Paul O’Neill has released a stunning internal memo, dating from the unveiling of the Bush administration’s first round of tax cuts in 2001. Its author was Michele Davis, a high-level Treasury official and participant in daily meetings on the administration’s communications strategy.  There is every reason to believe that her memo, generated for a pivotal, high-profile public appearance of the administration’s top economic spokesman, reflects strategies developed at the highest level.  It begins innocently enough: O’Neill is asked to plug tax cuts at a press event unveiling the President’s first budget.  Then, however, Davis warns: “The public prefers spending on things like health care and education over cutting taxes.”

Davis writes that it is, instead, simply a reason to avoid talking about any trade-offs that tax cuts might entail: “It’s crucial that you make clear that there are no trade-offs here….Roll-out events like this are the clearest examples of when staying on message is absolutely crucial.  Any deviation…will change the way coverage plays out from tomorrow forward.”

Of course, this political method naturally leads to very large deficits. The Republicans have now fashioned themselves as the party of fiscal discipline, an imperative that drove them to do something they haven't tried since 1995 -- actually lay out a budget that reconciled their priorities on spending and taxing. This was a huge mistake. As happened in 1995, this laid bare the wild unpopularity if their choices.

Lots of things happened to let Democrats win a special election in NY-26 where they were expected to get crushed. But the most important is simply that Republicans were forced to defend highly unpopular priorities on the basic question of government's role. Henry Olson of the American Enterprise Institute explains why:

As I’ve written before, blue-collar voters react differently to issues than the GOP base does. They are more supportive of safety-net programs at the same time as they are strongly opposed to large government programs in general. These voters crave stability and are uncertain of their ability to compete in a globalized economy that values higher education more each year. They are also susceptible to the age-old Democratic argument that the secret Republican agenda is to eviscerate middle-class entitlements to fund tax cuts for the wealthy.

As David Frum explains, that age-old argument happens to be true:

Ryan’s plan cuts the top rate of personal and corporate income tax from 36% to 25% with promises of offsetting revenue raisers to be determined later.

Because Ryan’s tax cuts were specific and his promises of revenue-raising reform ultra-vague, he had no defense to the attack that his tax reform involves massive downward redistribution of the tax burden. And after all, it’s hard to imagine what tax enhancements would counteract the distributional effect of a cut in the top rate of income tax from 36% to 25%. Ending the mortgage interest deduction for mortgages of between $417,000 and $1,000,000 (a good idea!) would not do it. Ending the deductibility of state and local taxes (another good idea) would not do it. A carbon tax (good idea again) for sure would not do it. Ditto a VAT. All of those measures would be good ways to raise additional revenues while leaving the current rates in place. But as offsets to a huge upper-income tax cut, they look like a shift of the tax burden from the upper class to the more affluent parts of the middle class at the same time as the rest of the Ryan budget removes Medicare coverage from the more affluent parts of the middle class – and leaves the remainder of Medicare very probably increasingly inadequate even for poorer Americans.

The one thing that might have enhanced the attractiveness of the Ryan Medicare plan is some kind of assurance of adequacy of the future Medicare vouchers for Americans under age 55.

Remember, under the Ryan plan, not only are Medicare vouchers means-tested, but they are also scheduled to grow in value at a deliberately slow pace. Today’s 40-somethings have good reason to fear that the vouchers will prove inadequate when it comes their time to retire.

It's remarkable that Republicans have voluntarily placed themselves in a position where they're fighting a high-salience battle on an issue where the public overwhelmingly opposes their position. It's not as if Republicans were completely unaware of this problem. They did take one step to reduce their political exposure -- exempt anybody over 55 years of age from cuts to Medicare, in the hopes that this would neutralize the opposition of those voters most focused on Medicare. They also hoped they could skate through by, as one Republican put it, "muddying the waters." And, indeed, Jane Corwin desperately tried to outflank her opponent to the left on Medicare. But muddying the waters is hard when you put some numbers down on paper and voted for them.

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