Tuesday, November 29, 2011

Republican Politicians Are Confusing Antipathy For Obama with Support For No New Taxes

The Republican party has a golden opportunity to take the Presidency and both houses of Congress in 2012. However, the GOP  may boot away this opportunity by misreading the results of the 2010 midterm elections. The success of Republicans in 2010 was due to: 1) voter anger at having Obamacare forced upon them; and 2) the weak economy. The Republican agenda was not the driver of the electoral success. As has been shown in the Wisconsin and Ohio, states in which Republicans took control of the governorship and the legislature, the Republican agenda is not terribly compelling to voters in the middle of the political spectrum.

In particular, the insistence of many Republicans on "tax purity" will hurt the party during the general election campaign. Not only is there widespread populist support for a "millionaires" tax, opposing it opens up the party to claims of being controlled by the rich and Wall Street. The GOP has gone so overboard for tax purity, that there is even some discussion that the endorsement of Mitt Romney by Charlie Bass in New Hampshire may not be helpful because he is not a tax purist.

While a tax purity message makes for a good sound bite, it is lousy deficit math. It is tough to envision how the deficit can be eliminated  if defense spending is untouchable and taxes are off the table. There is no question that imposing tax increases during a recession will make it even more challenging for the economy to recover. However, cutting entitlements will also have a negative impact upon the economy as recipients will have less money to spend. It is perverse to only focus on the negative impact on the economy of increasing taxes while ignoring the impact of entitlement cuts.

As painful as it will be to cut the trillion dollar deficit during a recession, not doing so will lead to a depression.  The southern European nations have already demonstrated that bond buyers will not fund an unending string of deficits once it grows to level that is unpayable without turning on the printing presses. Even with record low rates for funding our national debt, the interest payments are already eating up 10% of U.S. revenue. If bond buyers begin to demand a risk premium for buying U.S debt, it could lead to a vicious cycle of bigger deficits and higher interest rates.

Given the disparate mix of voters the Republican party needs to attract in order to win the general election, including social conservatives and libertarians, the only path to electoral success is to focus on being the party that opposes Obama's unpopular policies. Embracing tax purity is good primary politics but may turn out to be costly for numerous Republican candidates on general election day

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