Wednesday, July 13, 2011

The Republican Case for Compromise

The New York Times: Opinion Pages
by Al Hoffman Jr.

I have always been a conservative Republican, and I subscribe to the ideas of less government, lower taxes, innovation and entrepreneurship. But I also believe that, in the face of a possible debt default by the federal government, Republicans need to embrace the principle of compromise.

Indeed, despite talk that Senate Republicans might simply let the president raise the debt ceiling unilaterally, and thus avoid the issue of budget and tax reform, it’s not too late for both sides to strike a grand bargain. By so doing, they will prove the better statesmen.

The threat of default is not about liberal or conservative politics: our nation has spent $14 trillion in money it doesn’t have and is on track to be saddled with as much as $26 trillion in debt by the end of the decade. That’s simply unsustainable.

Yes, Democrats are depicting Republicans as fanatics holding, as President Obama put it in a recent speech, a “gun against the heads of the American people to extract tax breaks for corporate jet owners.” Republicans may want to walk away from these cheap demagogic attacks, but our nation can’t afford it.

Instead, they should counter the president’s smallness by going big. Rather than go to their martyrdom as ideological purists, they should open the door to tax increases — but only if every $1 in new taxes is applied to deficit reduction and is matched by at least $4 in real spending cuts, including entitlement reform.

Why the 4-to-1 ratio? Precedent: in a study of fiscal reforms by 21 developed countries between 1970 and 2007, the American Enterprise Institute, a conservative research group, found that, on average, “failed attempts to close budget gaps relied 53 percent on tax increases and 47 percent on spending cuts.”

Successful formulas, on the other hand, combined 85 percent in spending cuts with 15 percent in tax hikes. The president has proposed a much lower ratio, closer to 60 percent in spending cuts and 40 percent in tax hikes, but at least the two sides would be on the same page.

Moreover, tax revenues do not need to come through higher, growth-deterring tax rates. The president’s bipartisan debt commission has already developed proposals to reduce or scrap tax breaks in a way that would both lower tax rates and generate $1 trillion in revenues over 10 years. Under one scenario, all tax breaks would be zeroed out except the child tax credit and the earned-income tax credit; meanwhile, three new, lower income tax rates of 9 percent, 15 percent and 24 percent would be established.

This plan, or a variant, would check several boxes in the Republican agenda: it would fundamentally reform the tax code, promote economic growth, reduce the deficit and make America more competitive in the global economy.

Unfortunately, there is a major stumbling block to any sort of real reform: the Taxpayer Protection Pledge, a document written by Americans for Tax Reform, a conservative advocacy group, and signed by most Republican senators and representatives. The pledge states not only that signers will oppose hikes in marginal income tax rates, but also that they will “oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.” In other words, signers of the pledge are supposed to vote to keep an irrational and corrupt system of tax loopholes if even $1 of savings goes toward deficit reduction.

And yet many House Republicans seem willing to wait until 2013 to pass major reform. By then, they hope, their party will control both chambers and they will be able to pass their own budget plan into law, with its promises to eliminate or shrink tax breaks and drastically reduce government spending, all without violating their tax pledge.

Whether or not their plan is a good idea, the strategy assumes there is time — and time is one luxury we don’t have. If Republicans really believe their own oratory about an impending debt crisis, now is the time to act, not the spring of 2013, even if it means compromise.

Some Republicans understand this. When queried about breaking the tax pledge, Senator Tom Coburn, a stalwart conservative from Oklahoma, asked which pledge was more important, “the pledge to uphold your oath to the Constitution of the United States or a pledge from a special interest group?”

Republicans needn’t abandon their commitment to smaller government. But by taking the high road of compromise now to achieve real reform later, they might just show which party is truly committed to its country’s future.

Al Hoffman Jr. was a national co-chairman for George W. Bush’s 2000 and 2004 presidential campaigns and a finance chairman for the Republican National Committee.

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