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

Jon Ward Contributor
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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.

Nonetheless, some conservatives who are most concerned about a possible debt crisis acknowledged that increasing the deficit in the short term is a risky path at a time when the nation’s creditors are growing uncertain about America’s ability to repay the trillions in of dollars in loans it has used to finance spending.

“When the deficit increases it does affect the U.S. economy in the global economy,” said one Senate Republican aide. “When we’re running deficits the way we are it affects our bond ratings and the interest on the debt, and that impacts the economy and interest rates and our ability to create jobs.”

This kind of thinking is what has prompted speeches like Sen. Tom Coburn’s on the Senate floor Wednesday, in which he railed that the Congress was “waterboarding the next generation with debt.”

Coburn has been a compelling figure in recent weeks, showing a more pragmatic side than he has over much of the past year, when he has blocked pieces of legislation numerous times, demanding that spending be paid for rather than added to the deficit and debt with the justification that it is “emergency spending.”

But Coburn, an Oklahoma Republican who was just reelected to his second term in the Senate, was one of the conservative members of the president’s fiscal commission who voted for it, despite the fact that numerous conservatives said it represented a massive tax increase.

And during the last week, Coburn has kept largely quiet about the tax deal, despite the fact that the $60 billion unemployment insurance expenditure, if it goes unpaid for, flies in the face of everything he has fought for over the past few years.

Coburn told conservative talk show host Hugh Hewitt Wednesday that he would likely not vote for the tax deal if the unemployment insurance is unpaid for, and indicated he will propose ways to pay for it. Rep. Mike Pence, Indiana Republican, said Thursday that Congress could move money not yet used from President Obama’s stimulus fund to cover the cost.

But Coburn devoted his floor speech Wednesday – a bigger and different platform than the Hewitt interview – to demanding that Congress take action on the broader issue of spending and deficit reduction, and to formulating a plan to make the nation’s entitlement system solvent.

“We already have a debt commission. It is called the U.S. Congress,” he said. “We are the debt commission. We have to have a plan to avert the catastrophe that is in front of us.”

“We are going to have a major liquidity crisis, and we are also going to have a major interest rate crisis. Nobody knows when it comes. But the one thing we do know is that if we don’t have a plan, we will no longer control our ability to get out of our problem; the people who own our debt will control how we get out of our problem,” Coburn said.

Obama was asked whether the tax cuts will require spending reductions in an interview with National Public Radio that aired Friday morning.

“Won’t reality argue that any cuts will have to be even deeper because this package that you’re pushing for now will mean there’s even less government revenue?” asked NPR’s Steve Inskeep.

Obama did not appear to be on the same page as Coburn, showing less of a concern about immediate and short-term deficits.

“I think that if you talk to economists, both conservative and liberal, what they’ll say is the problem is not next year. The problem is, how are we dealing with our medium-term debt and deficit, and how are we dealing with our long-term debt and deficit?,” Obama said. “And most of that has to do with entitlements, particularly Social Security and Medicaid.”

But Coburn’s sentiments were echoed Thursday by the two co-chairs of the debt commission, Democrat Erskine Bowles and Republican Alan Simpson, following their meeting with Treasury Secretary Tim Geithner at the White House.

“While Congress and the administration decide how to temporarily address the lagging economy, we call on the president to launch negotiations with congressional leaders from both parties when Congress returns in January on the critical next step of establishing a serious fiscal responsibility plan to strengthen our economy for the long term,” Bowles and Simpson said.

“Our country needs a comprehensive plan to restrain spending across the federal budget, enact broad-based tax reform that lowers rates and reduces the deficit, take steps to bring down health care costs, and make Social Security solvent for the next 75 years and beyond.”

Former Alaska Gov. Sarah Palin had been critical of the tax plan on Twitter but has not yet taken an explicit position on it. A spokeswoman declined to comment on the agreement.

Palin instead chimed in on the issue of the nation’s debt in a Wall Street Journal column that went live online late Thursday.

“Our country is on the path toward bankruptcy. We must turn around before it’s too late,” she said, in an endorsement of Wisconsin Republican Rep. Paul Ryan’s “Road Map” budget and entitlement plan.

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