By now, you know the score. The White House and congressional leaders want to strike a debt-reduction deal, but can’t because only one side is willing to compromise. Democrats believe the agreement should include a combination of spending cuts and additional revenue; Republicans believe 100% of the deal must be composed of cuts or they’ll crash the economy on purpose.
Yesterday, the Republicans’ Senate leader did his best to explain his party’s position.
Appearing on “Fox News Sunday,” Senate Minority Leader Mitch McConnell (R-Ky.) called the White House proposal [for additional revenue] “a terrible idea” and “a job killer” at a time when the unemployment rate is rising.
After the meeting, Don Stewart, McConnell’s deputy chief of staff for communications, said in a statement, “It’s baffling that the president and his party continue to insist on massive tax hikes in the middle of a jobs crisis while refusing to take significant action on spending reductions at a time of record deficits.”
We talked a bit about this on Saturday, but let’s revisit the subject because I think this is important and generally underappreciated.
Obviously, part of the claim from McConnell’s office is just blatant dishonesty — to say Democrats “refuse to take significant action on spending reductions” is simply at odds with reality. Dems have already offered massive spending cuts and McConnell knows it.
For that matter, Dems aren’t proposing “massive tax hikes,” and would gladly delay their implementation of any measures as part of the larger deal. McConnell surely knows this, too.
Perhaps more important, though, is the economic argument here. McConnell believes there’s a jobs crisis, which makes it a bad idea to pursue additional revenue. It’s a standard GOP line: tax increases and/or cancelling tax expenditures is necessarily bad for job creation.
The natural response to this is to point to the recent examples of policymakers — most notably Ronald Reagan and Bill Clinton — who raised taxes in the midst of weak economies, only to see the tremendous economic results soon after.
But that’s only part of the story. What McConnell doesn’t seem to realize is the Keynesian economic model at the heart of his argument.
Unlike most of what McConnell believes, I actually understand his point here. Why does he oppose any and all tax increases? Because as he sees it, the economy is weak, and if there are tax increases, it would take money out of the economy and put into the Treasury. That would be wrong, McConnell believes, because we want that money in consumers’ hands, generating economic activity.
In the next breath, however, McConnell then argues that he also wants spending cuts, taking money out of the economy and putting it into the Treasury.
Take a look at the statement from McConnell’s office again: “It’s baffling that the president and his party continue to insist on massive tax hikes in the middle of a jobs crisis while refusing to take significant action on spending reductions at a time of record deficits.”
In effect, the senator is arguing, “We can’t take money out of the economy. What we should instead do is take money out of the economy.”
The policy reasoning that tells Republicans that tax increases are a bad idea is the same policy reasoning that makes sweeping budget cuts a bad idea, too.