For purposes of forging a bipartisan agreement that begins to solve the problem, we're willing to accept new revenue, under the right conditions.So John Boehner says Republicans are willing to accept new revenue, but not from higher tax rates. Instead, the new revenue must come from economic growth unleashed by tax reform. And even then, Republicans will only accept the new revenue if there are cuts to entitlements—Social Security, Medicare and Medicaid.
What matters is where the increased revenue comes from, and what type of reform comes with it.
Does the increased revenue come from government taking a larger share of what the American people earn through higher tax rates?
Or does it come as the byproduct of a growing economy, energized by a simpler, cleaner, fairer tax code, with fewer loopholes, and lower rates for all?
And at the same time we're reforming the tax code, are we supporting growth by taking concrete steps to put our country's entitlement programs on a sounder financial footing?
Or are we just going to continue to duck the matter of entitlements, and thus the root of the whole problem?
Boehner sold the speech as an olive branch to the president and for the most part, the press bought it. The New York Times headline was "Boehner Strikes Conciliatory Tone in Talk of Fiscal Cliff" and Politico's was "John Boehner: ‘We're ready to be led’ on taxes", but the reality is that Boehner's speech was no different than the position he outlined during the GOP-manufactured debt limit crisis. Economic growth will always increase revenue even if net effective tax rates stay the same. Whether or not tax reform would boost that baseline economic growth, it's absurd for Boehner to argue that Republicans are compromising by agreeing to accept those new revenues.
Boehner should only be given credit for showing a willingness to compromise if he says the GOP is open to accepting an increase in the effective tax rate. Otherwise he's just peddling the same old supply-side orthodoxy that Republicans always peddle. I happen to think supply-side economics doesn't make sense, but whether you think it does or it doesn't, Boehner hasn't actually said anything to suggest he's willing to compromise the GOP position.
Given that his stated position is as inflexible now as it was in the summer of 2011, it's worth exploring why Boehner is trying to make it seem like he's open to compromise. I think the answer is simple: if President Obama and Democratic leadership follow through on their promise to let the Bush tax cuts for the wealthy expire, Republicans are not in a strong position to reject extending tax cuts on income under $200,000.
As long as Democrats stay united, Republicans would pay a severe political penalty for holding those tax cuts hostage. In the past, however, Democrats haven't stayed united, and by pretending that he's willing to compromise, Boehner is undoubtedly trying to test their resolve. If you think history is going to repeat itself, it's a good move on his part. But if Democrats finally find it within their capacity to hold their ground, Boehner could be stepping into a world of pain.
Tax reform may be a laudable goal, but the real question over the next two months is whether to extend the Bush tax cuts on the wealthy or not. Democrats have made it clear what their position is, and as long as they stick to it, Republicans will have to choose between accepting that the Democratic position won on election day or being responsible for raising taxes on every single working American starting January 1, 2013.
Let's hope Democrats hold their ground.