Fiscal Cliff: House Republican proposal abandons core principles, gains little

By Alison Acosta Fraser and J.D. Foster, Ph.D.

The Heritage Foundation

The House Republican leadership has offered a substantive counteroffer to President Obama’s frivolous fiscal cliff proposal of last week. At first blush, it appears little more than categorical, pre-emptive capitulation.

To be fair, the details of the Republican proposal are extraordinarily vague. Nor is much clarity or comfort gained from the three-page accompanying letter sent to the President and signed by Speaker John Boehner (R-OH), Majority Leader Eric Cantor (R-VA), House Budget Committee Chairman Paul Ryan (R-WI), and three other senior members of the House Republican leadership.

Much can and likely will come out in the days ahead clarifying what a few figures and labels on a single sheet of paper mean. One can only hope the additional clarity substantially improves the picture. However, it is very difficult to be hopeful.

The fiscal cliff contrived by President Obama and the Congress over the past two years creates a tremendous opportunity for Republicans and Democrats alike to come together onsome simple yet profound, widely understood and commonsense reforms to the real drivers of the nation’s fiscal troubles—Social Security, Medicare, and Medicaid. Beyond disappointing, the House Republican counteroffer appears at best to suggest incremental tweaks to these programs. Without real entitlement reform—not just spending cuts—we will never fix the underlying problem.

Real, substantive reforms are badly needed, as the Boehner letter affirms in observing “these reforms are, in our view, absolutely essential to addressing the true drivers of our debt.” They then go on to observe, “we recognize it would be counterproductive to publicly or privatelypropose entitlement reforms that you and the leaders of your party appear unwilling to support” (emphasis added). Rarely in modern American politics have more counterproductive, more foolish words been set to paper.

In exchange for these incremental tweaks to spending, the Republican plan offers up what it calls “revenue through tax reform.” One hopes this means revenue arising from the additional economic growth that would pour forth from pro-growth tax reform. However, references to the Bowles plan suggest otherwise. They suggest instead revenues through tax deform, an anti-tax reform program of reductions in the availability of certain deductions and exemptions—without offsetting reductions in rates. While preferable in general to raising tax rates, this proposal largely dooms future efforts at tax reform based on the sound principle of broadening the tax base to lower the rates. Instead, this proposal would broaden the base, not to lower rates, but to raise revenues. So much for improved economic growth.

Despite these thoroughly discouraging aspects, the Republican letter includes two encouraging statements. The first is the reassurance that House leadership continues to support the elements of the House Budget Resolution passed last year by the House. The House Budget Resolution assumed a fundamental overhaul of the federal tax system and reforms to federal entitlement programs, “ensuring they are sustainable for the long-term rather than continuing to grow out of control.” This is encouraging because it suggests the House Republican leadership still grasps what real solutions look like. Unfortunately, the letter prefaced this reference by comparing it in its practicality to the frivolous Obama proposal of last week.

The second encouraging statement in the letter was in reference to higher income tax rates, “which we will continue to oppose and will not agree to in order to protect small businesses and our economy.”

Despite these encouraging notes, the Republican counteroffer, to the extent it can be interpreted from the hazy details now available, is a dud. It is utterly unacceptable. It is bad policy, bad economics, and, if we may say so, highly questionable as a negotiating tactic.