Paul Krugman is confused about why Republicans are so insistent on making any tax changes pertain only to deductions while rates remain the same. Krugman concludes that it is probably because Republicans are protecting the richest of the rich. Which is probably true in a way, but I think it only tells a part of the story.
If we’ve paid attention to the Republicans, it is apparent that they don’t really believe in any of this stuff about compromising on taxes. They just got their asses handed to them in an election, however, and but for some handy gerrymandering work they’d not even control the House. They have very little choice but to at least try to sound a little humbled and willing to work. If nothing else, it is the only way to fool the gullible Village Media – always on the look out for some insane Republican upon which to absurdly affix the “reasonable, respectable statesman” label. (The fact that Paul Ryan could hold his wacko, far right views and still be lauded by the media just illustrates how gullible those fools really are.)
Since Republicans don’t really believe in raising revenues, but they have to sound at least somewhat reasonable, talking up reform of tax reductions while trying to hold the line on rates makes perfect sense.
As I have said repeatedly on this blog and on Twitter, a deal built on reform of deductions and loopholes while failing to raise rates is a fool’s deal. The Republicans know all too well that the second a loophole is closed, there will be plenty of opportunity to re-open it. Deductions and loopholes are popular with politicians looking to give out targeted goodies. Raising rates, however, is not particularly popular. And thus it is not easy. And since Republicans had to use all sorts of tricks and the cover of a war to enact these tax rate cuts in the first place, it is a good bet that re-lowering the rates down the road would involve one hell of a battle as well. Republicans are weak right now. It makes sense for them to try not to have the tough battle on rates at this time. It is a classic strategy of trying to win by not having the battle at all.
It is really hard to raise rates – particularly if one party has simply decided they simply will never, ever agree to raise them, even if it damages the country. Yet there hasn’t been a time in perhaps 40 or 50 years (or more) where the concept of raising tax rates is this popular. The likelihood that Democrats have this much leverage over Republicans on the issue any time soon is very low. The Democrats’ strategy should be to fight the battle while they have the advantage.
The key for Republicans is to get the Democrats to fumble away their leverage by not following through on rates while doing so is popular (something Obama and Democrats have already done in Obama’s first term). If Democrats cave on rates by exchanging them for deduction reform, the Republicans have won. They can spend the 2014 mid-terms bashing Democrats over the head for closing popular loopholes or deductions, they get to forestall primary battles because they didn’t raise tax rates, and they can go full-on revanchist right away to try and carve back all of the loopholes and deductions that were eliminated.
Why are Republicans asking Democrats to stick to deductions and make no changes to rates? Because Republicans are hoping to convince their stronger opponent to simply surrender without a fight.