GOP should consider a strategic retreat on fiscal cliff

On the other hand, senior House leadership aides are not happy with Senate Republican leader Mitch McConnell. Apparently, McConnell and Majority Leader Harry Reid are ready to do a two-stage deal if the Boehner-Obama talks collapse. The first stage would extend middle-class tax rates and somehow compromise on upper-end rates. Then a process would be set up to produce spending cuts to replace the sequester. But House aides regard this as a nonstarter, one that could even undermine the Boehner-Obama talks.

Here’s the really big principle in all this: Why raise taxes at all in the worst economic recovery going back to 1947? Tax hikes and larger government are economic deterrents.

Furthermore, the whole world is talking taxes rather than spending cuts. What happened to the $1.2 trillion sequester? And what happened to the idea of $4 of spending cuts for every $1 of tax revenues? Some scorekeepers believe Obama’s plan raises taxes more than it cuts spending. Not exactly what Simpson-Bowles had in mind. Or even Ronald Reagan, who back in 1982 was promised three-to-one spending cuts over revenue increases. He didn’t remotely get it.

As an old Reagan supply-sider who believes in the flat tax and strictly limited government, none of this makes sense in terms of promoting economic growth, jobs, and prosperity. But the key tactical point is that all these machinations seem unlikely to meet the December 31 deadline for tax extensions and sequester budget cuts.

That may not be the end of the world. But it shows how dysfunctional Washington remains.

Larry Kudlow is the host of CNBC’s “The Kudlow Report.”