This article planted by Republican operatives looking to absolve their party of blame for failure on the Super Committee suggests that the rank and file are being persuaded to accept tax increases as part of an overall deal. The entire premise of the article is wrong, because it posits as a “tax increase” a deal that would cut taxes by $3.3 trillion (by making the Bush tax cuts permanent while “increasing” a small amount through capping deductions). But the whole story doesn’t square with committee co-chair Jeb Hensarling’s appearance on CNBC last night.
HENSARLING: But listen, any penny of increased static revenue is a step in the wrong direction. We can only balance that with pro-growth reforms, and frankly the Democrats have never agreed to that. So I don’t know how many times I can tell you, that agreement’s not going to happen.
KUDLOW: I appreciate the honesty.
In other words, it’s the Republicans’ way or the highway. Again. So John Boehner can move in with Harry Reid for the next week, but you’re not going to see a deal along these lines unless it’s a total capitulation on the part of the Democrats. And they are moving in that direction, considering a reduction in their request for revenues to $800 billion from $1 trillion. However, that includes an extension of at least the current top marginal tax rate (35%), so that’s a misleading number. The Super Committee is basically arguing over how much they’re going to cut taxes from current law.
But the optics here are important. If there was really a deal in the works, the co-chair of the committee wouldn’t go on television and start negotiating through the media. He wouldn’t make ultimatums about how “any penny of increased static revenue is a step in the wrong direction” (“Static revenue” is a new term. It means revenue that’s not acquired through economic growth, or “dynamic revenue.” In other words, the only revenue Republicans can abide is fake revenue conjured through accounting gimmicks.)
So I think the Obama Administration is right to be bracing for failure in the committee. And I think they would know better than I would.
In fact, the more interesting part of Hensarling’s appearance concerned what would happen after the Super Committee failed. He told Larry Kudlow that he would try to alter the defense side of the automatic cuts that would ensue from that failure. “We’ve got 13 months to find a smarter way to do it,” he said.
Harry Reid basically shut this down yesterday.
Senate Majority Leader Harry Reid (D-Nev.) said Tuesday that Democrats would not allow Republicans to save the Pentagon from cuts if the supercommittee fails to reach a deal.
“If committee fails to act, sequestration is going to go forward. Democrats aren’t going to take an unfair, unrealistic load directed toward domestic discretionary spending and take it away from the military,” Reid told reporters. Reid said he would personally oppose any effort to unwind the penalty cuts.
“Those who talk about retracting the sequester are not living up to the agreement we reached … last July,” he said.
“I would not vote to undo the sequester,” he added.
That’s the more important fight to game out right now. Because it’s the one that’s actually going to happen.