Winston Churchill may have said it best about his fond friends: “You can always count on Americans to do the right thing – after they’ve tried everything else.”
On fiscal policy, we Americans have long been “trying everything else.” We’ve cut taxes and boosted spending for at least a decade, turning surpluses into deficits that are now on track to explode in size.
Well, here’s some good news. We may be getting ready to do the “right thing.” We may not get to responsible fiscal policy immediately, but the signs of serious movement in the right direction are mounting.
First, Republican anti-tax absolutism continues to crack, with growing numbers of Senate Republicans talking about raising revenues by closing tax loopholes.
Last week, Senate Republicans voted overwhelmingly to eliminate tax subsidies for ethanol production. That caused a huge public spat between the Senate GOP and Washington’s most influential anti-tax advocate, Grover Norquist, with Norquist suggesting the vote was due to special circumstances.
Apparently not. Senator Lamar Alexander, R-TN, is now working on a broader plan to scale back tax subsidies for oil and gas. Meanwhile, Senator Lindsay Graham, R-SC, said on NBC’s “Meet the Press” yesterday that Republicans would be willing to close other subsidies as part of a deficit reduction deal. “No one on the Republican side is going to vote to raise taxes, but I think many of us would look at flattening the tax code, do away with deductions and exemptions and take that revenue to help pay off the debt,” he said.
“Doing away with deductions and exemptions” is, of course, a way to raise taxes because scaling back write-offs will mean that some taxpayers will pay more. Graham really meant that Republicans won’t raise tax rates.
Fine. Washington allocates more than $1 trillion a year in “deductions and exemptions.” If Republicans would scale them back, as key Republican economic adviser Martin Feldstein has suggested, that could open the door to serious revenue raising and a broad deficit-cutting deal with Democrats.
Second, and speaking of Democrats, their overwhelming opposition to cuts to Social Security has suffered a serious blow. That’s because the nation’s most important lobbying organization for senior citizens, AARP, has announced that it could support modest cuts in Social Security as part of larger deficit-cutting efforts. That gives progressives more running room to cut Social Security and makes it tougher for others to say that they have to oppose Social Security cuts at call costs. If cuts are OK with the AARP, they should be OK with everyone.
All of this is good news. After all, deficit cutting is about compromise. Republican and Democratic movement away from absolutist positions is a prerequisite for compromise and, in turn, progress. We may be witnessing early indications that, on fiscal policy, Churchill’s observation will once again prove insightful.