If Congressional Republicans want to know why people call politics the "second oldest profession" and view politicians with similar regard to used car salesmen, they need only look at the new mantra of Republican super committee members: "We will not raise your taxes as much as the other guys." Congressional Republicans, who railed against President Obama for raising a trillion dollars of new taxes in the Obamacare legislation and professed that raising taxes in the middle of a recession is the surest way to prolong it, have pledged to raise half a trillion dollars in new taxes as their opening gambit in the super committee negotiations.
Congressional Republicans who refused to be sucked into the Marxist rhetoric of President Obama and the "Occupy Wall Street" crowd by voting down tax increases on millionaires and billionaires, have proposed raising taxes on families and small businesses making a fraction of that amount. Congressional Republicans who reminded us that we have a "spending problem" and not a "revenue problem" have thrown their lot in with Congressional Democrats. These Democrats mocked Republican Presidential candidates for refusing to accept a 10:1 ratio of spending cuts to tax increases while being unwilling to accept the recommendation of the President’s blue ribbon commission when it proposed a 4:1 ratio of tax cuts to spending increases. While this is terrible economic policy, the political implications for Congressional Republicans and the Republican Presidential candidate are even worse.
Republican super committee members have reportedly proposed eliminating or scaling back itemized deductions for mortgage interest, state and local taxes and charitable deductions in exchange for the permanent extension or a slight reduction in the Bush era income tax rates. Make no mistake, this will be a NET TAX INCREASE at the federal level. Whether taxing income or property, most states levy taxes in the neighborhood of at least 5-10%. Reducing the highest income tax bracket by no more than 10% would likely result in a net tax increase for most Americans in this income tax bracket, especially when combined with the elimination of the deduction for mortgage interest.
This tax increase would effect the overwhelming majority of small business income which, as Congressional Republicans continue to remind us, is responsible for most job growth. This does not sound like a prescription for reducing the country’s 9% unemployment rate. Even if Congress were to devise a formula so no one paid additional income tax, scaling back or eliminating the mortgage interest deduction would result in a dramatic reduction in home prices since home buyers would lose the benefit of the tax deduction. In an economy where people estimate that approximately 25% of homes are worth less than the value of their mortgage, this is a prescription for disaster.
As bad as the economic implications are for this proposal, the political implications are even worse. On the shoulders of the Tea Party movement in 2010, Republicans swept into office in the largest Congressional shift of power in the country’s history with a mandate to limit the size and scope of the federal government. This means reducing spending and lowering taxes. By agreeing to raise taxes by at least half a trillion dollars, Congressional Republicans will be turning their backs on the people who voted them into office. This will allow their Democrat opponents to claim correctly that ALL politicians support raising taxes.
Voting to raise half a trillion dollars of new taxes will cut the legs out from under the Republican Presidential candidates as well. Many candidates have offered plans that cut federal taxes and flatten tax rates dramatically. Voting to raise taxes in advance of the election will allow President Obama to label the Republican Presidential candidates as extreme because Republican Congressmen had just voted to raise taxes. In addition, voting to make the Bush era tax rates permanent before the election will prevent Congressional Republicans from pointing out that their Democrat colleagues did not support extending these rates beyond 2012.
Congressional Republicans may read polls that suggest that everyone would prefer that someone else pay for the federal government. Unfortunately, Congressional Republicans seem unable to read election results. Two weeks ago by a 2:1 margin in a state that President Obama won by nearly 10% of the vote in 2008, the voters of Colorado soundly rejected a measure to raise the state sales tax by 1/10th of 1% in order to pay for an increase in education funding. This is the same justification that President Obama and Congressional Democrats use to defend far greater tax increases.
Since Congressional Democrats have rejected their initial proposal, Congressional Republicans need to take a harder line in future negotiations. For the economic future of the country and their own political survival, Congressional Republicans should fear what happens if they raise taxes much more than if they get sucked into President Obama’s political narrative. President Obama is a sinking ship. The question for Congressional Republicans is whether they want to go down with him.