An agenda of balancing the budget with only spending cuts combined with radical tax reform might not be electorally viable.
An agenda of balancing the budget with only spending cuts combined with radical tax reform might not be electorally viable.
I t’s not fair to say that the Republican Party doesn’t change at all, but, in some ways, the Republican Party is shockingly similar to its pre-Trump self and remarkably resistant to learning from experience. Someone who had gone into a coma in spring 2012 and woke up on January 1 of this year would have found the stakes of the Kevin McCarthy speakership fight quite familiar (minus Matt Gaetz’s surrealist antics like nominating Donald Trump, still just a controversial reality-show star to our 2012 transplant, for speaker.)
As in the 2012 election cycle, you had a Republican establishment that wanted to hold power and conservative dissidents who wanted to cut government. In 2012, the conflict between those two tendencies produced the synthesis that became the Romney-Ryan policy agenda. Nobody wants to own the outcome of that campaign, but the House Republicans are drifting toward a reenactment.
It is worth looking at the terms of negotiation between Republican House leader Kevin McCarthy and the conservative dissidents who temporarily blocked his ascension to speaker. The final results were more moderate, but the initial ask of the dissidents included an up-or-down vote on a group of bills that included a ten-year balanced budget and the replacement of our current income and payroll taxes with a national sales tax.
But before we get into the problems with that program, let us look at the 2012 Romney-Ryan economic agenda. The Romney-Ryan economic plan was designed to bring the annual budget deficit down to a sustainable rate of about 2 percent a year without hurting the economy with tax increases, and to encourage economic growth by cutting income-tax rates while closing tax deductions.
That’s one way of looking at it. Another way of looking at it is that the Romney-Ryan plan depended on getting to a sustainable deficit almost entirely with spending cuts (especially to Medicare and Medicaid) while sharply reducing the tax rates paid by the rich.
According to the 2012 election exit poll, the voters mostly saw it the second way. Fifty-three percent of respondents said that Mitt Romney’s policies would mostly favor the rich. Only 34 percent believed that Romney’s policies would favor the middle class.
One thing to keep in mind is that, within the limits imposed by its goals (reducing the budget deficit almost entirely through spending cuts, no tax increases, and cuts on high-earners), the Romney-Ryan economic plan was shrewdly constructed. By not seeking to outright balance the budget (allowing for deficits of around 2 percent of GDP), the plan avoided hundreds of billions of budget cuts that would have made it even more unpopular. While the tax plan didn’t provide many direct benefits to most Americans in the lower half of the income distribution, at least it didn’t raise their taxes. But even this plan was a loser (though not a total disaster) with the public.
The Conservative Dissidents
Yet Republicans can’t seem to quit this kind of thinking entirely. The initial demands of the conservative dissidents to McCarthy were a set of proposals that, taken together, would have been politically disastrous for the GOP. An outright balanced budget (without tax increases) would require hundreds of billions worth of spending cuts over an above those of the Romney-Ryan economic plan. That would be unpopular enough. Combined with radical tax reforms like the Fair Tax (a national sales tax to replace the federal income and payroll taxes), however, a balanced budget becomes politically toxic.
In the period between the crash of the George W. Bush administration and the rise of Trump, there was a vogue among conservatives who were alienated from the party establishment to support various radical tax proposals. There were various kinds of flat taxes. There was the Fair Tax. There was Herman Cain’s 9-9-9 plan (a 9 percent flat income tax, a 9 percent sales tax and a 9 percent tax on either corporate or business income – the last nine varied depending on when Cain was telling the story.)
What all of these plans had in common is that they faced a tradeoff. Since federal income taxes are progressive and higher-earning people consume a smaller share of their income, these plans would either have to set their tax rates at such a level that they raised the tax burden on segments of the poor and/or the middle class while cutting taxes on the rich, or (by giving the poor and middle class sufficiently large exemptions from the taxes), these plans could avoid tax increases on anyone but at the cost of decreasing government revenue — which would then increase the budget deficit. That would be fine if one was fine with a larger deficit. But if one wants a balanced budget and radical tax reform, that means one has to choose between tax increases on the non-rich or even deeper spending cuts than balancing the budget with our current tax system.
So the combination of a balanced budget and radical tax reform starts with even deeper spending cuts than those of the unpopular Romney-Ryan plan and then forces a choice of either tax increases on those who aren’t rich (while sharply cutting taxes on the rich themselves) or two rounds of spending cuts over and above those of the Romney-Ryan budget.
Whatever their flaws, those in the Republican establishment’s politicians understand that no party can win (and it is questionable if it can even survive) running a national general-election campaign based on the undiluted proposals of the dissident conservatives. The dissident conservatives are not able to force their proposals on the party because their candidates never win the Republican presidential nomination or the majority of seats to Congress.
But the dissident conservatives have some influence. As the speakership drama indicated, they had the numbers to block the Republican establishment from organizing the House of Representatives unless they got some concessions. Also, as in the speakership drama, the dissident Republicans assumed the mantle of general public dissatisfaction with the Republican Party. Most Republicans hadn’t heard much about the Fair Tax and probably didn’t understand much of anything of the specific parliamentary changes demanded by the House Republican dissidents. But millions of Republicans and conservatives were unhappy at the direction of the country and intuited (correctly) that Kevin McCarthy didn’t have a lot of answers to their discontents. The dissident conservatives shrewdly made themselves the voice of that discontent and got to incrementally strengthen their place in the Republican Party in the process by getting McCarthy to agree on some concessions, like a promise to fight to cap discretionary spending at 2022 levels.
That doesn’t make the policy preferences of the dissident Republicans any less toxic in a general-election campaign. The result of all this is that the dissident conservatives see the Republican establishment as a bunch of smarmy cowards, while the establishment Republicans see the conservative dissidents as insane charlatans. And they are stuck with each other because the conservative dissidents are just more-extreme versions of the establishment Republicans.
The Craziest SOBs
Donald Trump was able to transcend the conflicts between the establishment Republicans and the dissident conservatives by abandoning plans to cut entitlements, abandoning any serious attempt to bring the budget deficit down to a sustainable level, and changing the conversation to immigration, trade, and other issues rather than the national debt. And Republican voters went along.
This was rather a surprise to the dissident conservatives. Conservative representative Thomas Massie, seeing that many of his supporters were also backing Trump, wondered if his supporters hadn’t been voting for smaller government and instead been voting for “the craziest son of a b**** in the race.”
Massie’s observation can be taken too far. In fact, while the 2016 Republican nomination contest was competitive, Trump usually performed weakest among Republican voters who identified as very conservative and usually lost this category of voter to Ted Cruz while winning somewhat conservative and moderate Republican voters by large margins.
But Massie wasn’t totally wrong. Even if Trump wasn’t the first choice of most very conservative voters, he was the first choice of a significant minority of them. These very conservative voters largely stuck with Trump through the general elections, and then they stuck with Trump through his deficits as president — including a deficit of almost $1 trillion in 2019 (the year before the Covid crisis and during a period of low unemployment.)
One way to look at it is that some voters who think of themselves as conservatives are unhappy about multiple things in modern America. At given moments, particular issues become proxies for being willing to stand up against all the things that they are unhappy about. Sometimes it is the budget deficit. Sometimes it is a wall on the southern border. Sometimes it’s Kevin McCarthy.
The challenge for Republicans is to craft a message and agenda that speaks to these conservatives — that makes them feel like you are fighting for them — while also appealing to the wider majority of Americans. The Romney-Ryan agenda failed to do that. An agenda of balancing the budget with only spending cuts combined with radical tax reform will do even worse.