The Fiscal Debate Is Over, But Who Pays?

Conventional wisdom suggests that, in the debt limit negotiations, the two parties are engaged in a titanic debate over the future direction of fiscal policy. Nonsense. The debate is over, and the Republicans have won.

Senate Majority Leader Harry Reid, D-Nev., made it official this morning when, in the Washington Post’s overview of debt limit negotiations, he pledged to unveil a plan today to achieve $2.7 trillion in budget savings solely through spending cuts. He’s avoiding tax increases, he says, in hopes of generating GOP support for his plan.


Democrats, who control the White House and Senate, have argued for many months that deficit reduction must include higher taxes at least for upper-income Americans. President Obama ran on a platform of not extending President Bush’s tax cuts for those making more than $250,000 and, even when he agreed to do so for two years at the end of 2010, he pledged not to do it again.

As recently as Friday, as he explained why his budget talks with House Speaker John Boehner, R-Ohio, had imploded, Obama made an impassioned plea for including higher revenues in a final plan so that policymakers do not have to cut so deeply into vital domestic programs.

In the private sector, deficit hawks of both parties have long called for a “balanced approach” of spending cuts and tax increases for the same reason – to soften the spending cuts. That’s true of Obama’s “Bowles-Simpson” commission, the Bipartisan Policy Center’s “Rivlin-Domenici” commission, and many others in recent years that have included former budget officials and lawmakers of both parties.

With deficits and debt projected to skyrocket in the coming years, the key question is the one we always face when the red ink is rising, the same one we faced in the 1980s and early 1990s: who will pay?

Who should pay? In recent years, U.S. incomes have stagnated except for those at the top – the very same segment of Americans who have enjoyed the disproportionate share of benefits from Bush’s tax cuts.

Nevertheless, Obama and Congress extended the Bush tax cuts in total at the end of 2010 and, by the way, gave another generous new tax break to those at the top by liberalizing the federal estate tax. During months of budget negotiations since then, Democrats have increased the size of domestic spending cuts that they would accept and reduced that of tax increases – all to get a budget deal.

Today, Reid gave away the revenue issue altogether, ceding the basic fiscal ground entirely to Republicans. No tax increases – not for billionaires or millionaires, and not for hedge fund managers who pay taxes at the lower capital gains rate.

Who will pay? Those who depend most heavily on key domestic programs. Now, the two sides will haggle only over the details of spending cuts.

Political scientists will marvel at how we got here.

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