Conservative Political Commentary

...anti-socialist, anti-globalist, and usually with an attempt at historical and economic context

Tuesday, November 27, 2012

Sequestration, Fiscal Cliff, or Both



House Republicans have some major decisions to make. Unfortunately, it is likely that any “grand bargain” would involve the GOP capitulating to Obama. Their “No tax increases” pledge will probably go the way of George H. W. Bush’s “Read my lips” promise. Thus they will accomplish the very thing they are supposedly trying to prevent.

Taxes should be the area where Republicans in the House hold the line. Any expected increase in tax revenue is illusory if rates are increased, since the economy will be slowed, and revenues will soon be lower. As Patrick Buchanan writes,
 What are the perils for Republicans who sign on to an Obama deal?

They will sever themselves permanently from much of the base of the party. While their votes may ensure that tax rates or revenues rise, they will have no assurance that the promised spending cuts will ever be made. Even Reagan fell victim to this bait-and-switch.

Then, if the tax hikes slow the economy, Republican collaborators will share the blame. Not only will they have gone back on their word, they will have damaged the recovery. What would be their argument for re-election?

Actually, Republicans can be assured that the spending cuts would never be made. Democrats will never cut spending, no matter what they say. This is a reality that cannot be changed. If the GOP goes along with Obama, their party will become even weaker.

As for sequestration, I agree with both Pat Buchanan and Bill Wilson that the GOP should simply allow it to happen. At least there will be real spending cuts somewhere, and otherwise there won’t be.   

As Wilson points out, the idea that sequestration will reduce GDP, the part it will reduce is government spending, which should be greatly reduced. So the reduced GDP excuse for avoiding it is weakened, although still technically a valid argument.

Daniel J. Mitchell of Cato Institute has an article entitled “Sequestration Is a Small Step in the Right Direction, Not Something to Be Feared.” He shows that even with sequestration, federal spending will continue to increase year by year, and that sequestration cuts represent only a small part of overall spending.

But there would be actual cuts. Mitchell quotes then-Senator Bob Packwood from a 1989 similar fight:
Instead of budget gimmicks, accounting tricks, phony cuts, and “revenue enhancements,” a sequester would reduce spending levels by a fixed percentage in eligible spending programs. In other words, unlike most deficit reduction packages, sequestration would actually reduce the deficit.
During the third presidential debate of 2012, President Obama said that sequestration “won’t happen,” but there is reason to think it may very well happen, and that it wouldn’t be a disaster.

What would be very disturbing to the economy is “Taxmageddon,” but let it be by the hands of Obama and the Democrats. The GOP House should stick to its principles, and pass an extension of all the Bush tax cuts. Let the guilt be on the tax-and-spend Democrats. From them, we can never expect anything other than more taxes and higher spending.  They won the election. As Buchanan suggests, let them explain it to the American people.

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