Republicans Try to Reclaim High Ground on Taxes

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2012

Chris Stirewalt and Charlie Hurt discuss the latest news on the 2012 campaign trail.

Republicans Try to Reclaim High Ground on Taxes

“$2.035 Trillion”

-- Estimated amount of new proposed taxes and fees for the next decade in President Obama’s budget for the upcoming federal fiscal year.

“$94 Billion”

-- Value of a one-year extension of the current 2-percent Social Security payroll tax break.

Republicans got burned badly in December for trying to do what Democrats had so long demanded: To “pay for” tax breaks.

They’re not going to make the same mistake twice.

Republicans have never been too fond of President Obama’s Social Security payroll tax holiday. Republicans prefer shock-and-awe style tax cuts to spur the economy by putting large sums back in the bank accounts of consumers and corporations.

The Obama plan, in keeping with his fairness doctrine, puts $11 or so dollars a week in the pocket of the average worker but does little to benefit top earners. This is a Keynesian kind of tax break designed to stimulate small purchases that eventually trickle up in profits for job creators.

The Republicans also don’t like the tax plan because of where the money comes from: the trust funds that were intended to fund Social Security and Medicare. Those funds are now fiscal fictions, stocked with IOUs from decades of congressional raids. Those programs are now dependent on the federal government’s general revenue (an estimated $7.2 trillion from 2015 to 2037).

Republicans still like to think of Social Security and Medicare as “entitlement” programs funded by special taxes collected by the government and held in reserve until the beneficiary is entitled to receive them. That’s why GOPers don’t see such a leap in creating personal accounts, vouchers, etc.

Democrats, however, see these programs as “entitlement” programs on the grounds that these are benefits to which all Americans are entitled as their rights. The source of the money, therefore, is less important since Democrats believe these are birthright propositions.

For a long time, Republicans held that tax cuts needn’t be paid for since, by their thinking, giving people back their money isn’t an expense and that tax cuts have often produced surges in federal receipts by spurring the overall size of the economy – growing the pie makes Uncle Sam’s slice bigger.

The problem with the theory, though, was that it means either cutting government spending in lean limes or accepting lots of deficit spending. Republicans in previous decade opted for the latter, in the belief that new government spending to protect the homeland and fight Islamic radicals abroad was unavoidable and that allowing continuingly high domestic spending was politically necessary.

But as deficits ballooned toward $400 billion post-9/11, Republicans came under increased pressure to “pay for” their tax cuts, prompting many in the GOP, like Sen. John McCain, to oppose Republican-backed stimulus tax breaks unless they had been offset by spending cuts elsewhere.

One of Barack Obama’s central campaign attacks in 2008 was about cutting taxes amid increasing deficits, calling the practice unpatriotic and irresponsible.

When the libertarian-minded House freshmen stormed Washington in 2010, they were determined to be models of fiscal probity and not keep up the sloppy practices of the past. By their thinking, if money was being taken away from Social Security, it needed to come from somewhere else in the government, and it certainly would not be from new taxes. With the ongoing deficit spending in Washington making what were once astronomical-seeming deficits of the previous decade look like piffle, the sense of urgency for fiscal restraint grew even stronger in the GOP caucus.

This left Republicans at the end of last year doing something unusual for their party: resisting the extension of a tax break. One of the reasons that so few Americans pay federal income taxes anymore is that Republicans for decades have accepted any tax break that came along, even when the net effect would be free money for some.

The new position proved untenable and now-President Obama ate the GOP’s lunch in December as Republicans struggled to explain why they didn’t really like the tax break… but would support it… but only if it was offset.

By ceding the first part of the argument to Democrats – that tax reductions are expenses that must be paid for – Republicans found themselves teetering on a precarious political perch and asking why programs should be cut to finance tax relief for Joe Six Pack instead of asking “millionaires and billionaires to pay their fair share.”

In their insistence on paying for the tax break, Republicans left Obama, whose core message for the current election season is about increasing taxes, to strike a pose as a tax cutter. It got Obama back on the good foot and opened up the most public rift yet between rank-and-file lawmakers and House leaders. It was a total botch.

On Monday, though, Republicans decided to retake their status as the tax cut party as the top the members of the Red Team in the House rolled out a very simple bill: keep the tax holiday, all $94 billion of it, for the whole year and don’t offset a penny of it.

Democrats do not like this one bit. Not only does it move the game back onto Republican terms in which there is no such thing as a bad tax cut, but it threatens to uncouple the tax issue from the other two big-ticket items with which the tax stimulus is currently coupled: the extension of long-term unemployment payments and the allocation of funds to prevent long-pending reductions in the rates doctors and hospitals are paid through Medicare.

The welfare and entitlement side of the equation costs more than $60 billion for the year and Democrats are hoping to use the tax cut as leverage on Republicans to get those provisions passed without being offset by cuts elsewhere. The Democratic message is that if Republicans don’t agree to the new spending the tax cuts will die too and House Republicans will again take the blame.

Democrats suggest borrowing most all of the money – both for lower taxes and increased spending – on the grounds that the economy needs all the stimulus it can get.

But by uncoupling the tax part of the package, Republicans are looking to reclaim their brand and get back on offense after what so far has been a pretty dismal winter.

There’s reason for them to believe it will work.

On the same day Democrats were pushing back on a Republican plan to speed a one-year extension of the stimulus-born reduction of the payroll tax from 6.2 percent to 4.2 percent, the Democratic president was proposing a host of tax and fee increases approximately 22 times larger than the temporary tax-relief package.

That’s an argument Republicans can win.

And Now, A Word From Charles

“[The Republicans] won't win the general election unless they make spending and debt the issue that it really is and Americans are really worried about. They are accepting the premise that somehow all of us have become Occupy Wall Street and everybody thinks if you redistribute income it will solve our economic problems.

Let me be even more cynical. The president knows we are headed over a cliff and he just wants to get past Election Day as he does on everything, on Keystone, on everything. But this is a budget worthy of Greece, and for the president of the United States to offer it knowing how dire the situation is truly scandalous.”

-- Charles Krauthammer on “Special Report with Bret Baier.”

Chris Stirewalt is digital politics editor for Fox News, and his POWER PLAY column appears Monday-Friday on FoxNews.com.