Politics

Mixed conservative reaction to tax deal caused by lack of clarity around deficit impact

For all the talk of the tax cut deal’s impact on the deficit, if Republicans can get spending cuts to pay for the $60 billion or so that it would cost to extend unemployment insurance for a year then the agreement will be acceptable to a majority of even the most conservative among them.

That explains the relative silence from the right over the past few days, as the left has erupted in anger at the deal and congressional Democrats have lashed out over being excluded in the bargain-making.

The White House attributed the conservative quiet this week to better discipline. But in truth, the Republican discontent among both lawmakers and outside groups has in fact been limited based on substance, and those who have publicly criticized the deal – such as Sen. Jim DeMint, South Carolina Republican – have softened their critique.

Some of this dynamic – where talk of spending and deficit impact in the tax deal has prompted questions about why the GOP is not more exercised about adding an announced $858 billion to the deficit – is due to disagreement and occasionally confusion over whether tax cuts add to the deficit or not.

Some of that may have been the reason that while groups like Tea Party Patriots and Tea Party Nation came out against the tax deal on Thursday, mostly around the issue of deficit spending, groups like FreedomWorks and the National Taxpayers Union announced their support.

“While changes to the compromise may mean we need to abandon our support, we support the framework of this compromise as we know it today,” wrote FreedomWorks CEO Matt Kibbe, in a letter to senators released Thursday evening.

“Ultimately, we want fundamental tax reform and serious spending cuts so Washington may be both less of a burden on the economy and also live within the means taxpayers are willing to provide. We believe this compromise puts us in a better position to achieve those goals than letting tax rates go up dramatically on January 1st, 2011.”

But staunch conservative columnist Charles Krauthammer blasted the deal in a Friday column, saying that President Obama, “despite a very weak post-election hand … got the Republicans to offer to increase spending and cut taxes by $990 billion over two years.”

“These are the same Republicans who spent 2010 running on limited government and reducing debt. And this budget busting occurs less than a week after the president’s deficit commission had supposedly signaled a new national consensus of austerity and frugality,” Krauthammer wrote.

None of the potential Republican presidential candidates have voiced an opinion on the tax deal, in probably the clearest indication of how politically thorny an issue it is.

Yet Republicans often add to the lack of clarity about the impact of tax cuts – and thus to the merits and demerits of a proposal such as this tax deal – with rigid ideological answers about how they are allowing hard-working Americans to keep more of their money.

The typical GOP stock answer ignores the impact on the budget deficit. Tax cuts do reduce revenues in the short term, thus widening the gap between money coming in and money going out. That increases the deficit.

But the conservative philosophy is that by “starving the beast” with reduced revenues, it forces Congress to cut spending to reduce the deficit, rather than increasing taxes. In addition, lower taxes are widely held to be a stimulus for businesses to expand and hire, decreasing unemployment and increasing revenue in the medium to long term.

That is why conservatives say that tax cuts – or as in this case the extension of tax cuts – does not grow the national debt. Growing revenues and shrinking spending, they argue, actually decreases the debt.