Why the GOP Thinks This May Be the Best Fiscal Crisis Yet

Who's winning, who's losing, and why.
Jan. 7 2013 11:52 AM

The GOP’s Next Round of Hostage Negotiations

Republicans like their chances in the next fiscal crisis—as long as the details stay vague.

John Boehner and Mitch McConnell
John Boehner and Mitch McConnell's job is to recast the coming debt-limit vote as a new normal that the country needs

Photograph by Paul J. Richards/AFP/Getty Images.

Around 10 years ago, before the Iraq War and the second round of Bush tax cuts, a New York Times reporter parachuted into the Hoover Institution to tap the wisdom of conservative economists. The last deficit had come in at $159 billion—unimaginably low today, but a stumble from the recent era of surpluses. And the economists reached by the Times, veterans from the pre-Clinton era, applauded Bush for erasing those surpluses.

David Weigel David Weigel

David Weigel is a reporter for Bloomberg Politics

“It is wrong to allow surpluses because these surpluses invariably lead to higher spending,” said John F. Cogan, a former OMB economist for Reagan and Bush I. “Governments simply cannot hang onto money.”

Well, we dodged that particular bullet. And this week and this weekend, spinning away the outcome of the Great Fiscal Cliff Showdown, we got the latest Republican catechism on how spending would finally be cut. The party will once again use the debt limit as leverage to demand entitlement cuts—the steepest anyone has discussed in 30 years.

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Republicans spent the Sunday shows describing this as reasonable, natural, the next step from the tax deal. “We have resolved the revenue issue,” said Sen. Mitch McConnell on Meet the Press, “and the question is, ‘what are we going to do about spending?’ ” McConnell used that word, “resolved,” four times to describe the effects of a law that will raise maybe $620 billion while protecting loopholes for electric scooters and Puerto Rican rum. In a weekend Wall Street Journal interview so sympathetic it came with a complementary neck pillow, John Boehner called himself “the guy who put revenues on the table the day after the election,” ignoring how he quickly ruled out higher tax rates as part of any deal, and was only talking about a theoretical reform that nuked loopholes while lowering rates.

McConnell and Boehner were packing a lot into those deep sighs. They argued that the tax deal did not, actually, represent a tax hike, because the rates were going up anyway; that the vote was nonetheless so painful that Republicans deserved points for not blocking it; and that the reward for these Republicans should be a final reckoning on spending. Their job, for now, is recasting the coming debt-limit vote as the best way to do that—not a fluke, not a “hostage negotiation,” but a new normal that the country needs.

That sounds ridiculous, but it’s not. Yes, Republicans have approached every fiscal crisis, real or imagined, as the opening act of an entitlement-cutting negotiation. That was the reason why they eventually broke on taxes. A fundamental rationale for Republicans’ tax fundamentalism was the belief that higher taxes would always be applied to higher spending. “The basic purpose of any tax cut program in today’s environment,” said future Federal Reserve Chairman Alan Greenspan in 1978, “is to reduce the momentum of expenditure growth by restraining the amount of revenues available and trust that there is a political limit to deficit spending.” Lower taxes, in addition to being stimulative, might eventually “starve the beast.” (Bruce Bartlett has thumbed through all the right history books for a definitive study of “beast-starving” theory.)

You could look at the last 30 years of Republican tax policy as a long anticipation for the big starve. In previous crises, they simply couldn’t convince voters that the possible threats were big enough to spur entitlement cuts. In 2005, the last time a Republican president and Congress campaigned for entitlement cuts, George W. Bush warned that Social Security was “headed toward bankruptcy” and that “by the year 2042, the entire system would be exhausted and bankrupt.” In a Florida speech, he’d clarify that “all ideas are on the table except running up the payroll tax,” which didn’t make it sound like a mounting crisis.

The debt limit needing to be hiked at the end of February—now, that’s a crisis. Republicans believe that the public is currently on their side. On Friday, John Boehner showed House Republicans a poll from the Winston Group, testing their messaging and positioning on the debt limit. The pollster had asked voters whether “any increase in the nation’s debt limit must be accompanied by spending cuts and reforms of a greater amount,” basically describing the “Boehner rule” that had governed 2011’s debt talks. Seventy-two percent of voters agreed with the “rule.” Now that it was decoupled from popular policies, like higher taxes on the rich and more funding for entitlements, it was winnable.

If you dug into the poll, the results were much more ominous for Republicans. The Winston Group asked its subjects about a few programs that could theoretically be slashed. There were seven possibilities: Reducing government programs “for people like you,” cutting defense spending, means-testing Social Security, raising the Medicare retirement age, raising taxes, ending charitable tax deductions, and ending the mortgage deduction. Only one of these—means-testing Social Security—won more support (61 percent) than opposition (35 percent). The tax ideas were loathed by an overall 2-1 margin; the entitlement ideas were opposed by a narrower margin.

When you talk to House Republicans, the people with the most leverage in the coming faux crisis, they’re not sure what to do with this. They worry about the “message.” In the “fiscal cliff” talks, they felt like they were made to look unreasonable. Whenever they propose a specific entitlement cut, they’re pilloried. This was one reason why the Republican leaders’ Dec. 3 response to “cliff” negotiations, a three-page open letter, suggested “more than $900 billion in mandatory spending [cuts]” without specifying what might be cut.

On Sunday, Republicans made great strides in Operation Vagueness. They stressed that the debt limit was naturally going to be a moment to force spending cuts, but that it wasn’t their fault, and that the cuts had to be suggested by the president. “None of us like using situations like the sequester or the debt ceiling or the operation of government to try to engage the president to deal with this,” said McConnell on Meet the Press. “It's a shame that we have to use whatever leverage we have in Congress to get the president to deal with the biggest problem confronting our future.” On Fox News Sunday, new Sen. Ted Cruz—a champion college debater who’s already being pushed to the front of press conferences—insisted that the debt limit would only turn into a crisis if Barack Obama made it so. “I do not support default on the debt,” he said, “and we should never default on the debt and the only players who are threatening to default are President Obama and Harry Reid.”

For 30 years, Republicans have struggled to find a crisis that could build support for real entitlement cuts. Now, the polls tell them that they’ve found it. That’s why it took so little time to rebound from the “cliff” loss.  

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