Democrats have another trillion dollars of taxes coming your way

There are two schools of thought about the fallout from the fiscal cliff deal, which will raise political radiation levels during the coming debt ceiling and sequestration battles.  Even though it’s been strung out over a few months, it’s really all part of one big apocalyptic nuclear exchange, and the first school of thought says Democrats have already cooked off their biggest warhead: they got the tax increases they crave, so they can no longer whine about how insufficiently high taxes are the reason for Washington’s financial distress.

One proponent of this theory is President Obama’s former Office of Management and Budget chief, Peter Orszag, who says the President lost some “bargaining power” by winning the first round of negotiations, but leaving the debt ceiling issue to be settled later.  “It’s entirely possible they’re going to win the week and lose the quarter,” he said of the White House position.

But the more depressing view of the fiscal cliff settlement is that Democrats have actually established a beachhead for even more tax increases.  They’ll interpret the Republican cave on tax hikes for couples earning over $450k as a confession of guilt on behalf of the Evil Rich, whose tax-cut “party” somehow “caused” Washington’s budget shortfall during the Bush era.  Far from settling the question of high taxes, this “confession” will merely invite a further Inquisition.  And since logic and reason have long since departed the stage – nobody with a functioning calculator can believe that even the highest tax increases of Barack Obama’s fevered dreams would “fix” more than 10 percent of the federal deficit – the emotional power of this argument will make the public eager for further looting of the Evil Rich.

This political battlespace is further shaped by the sad reality that nobody is really talking about “fixing” the federal deficit anyway.  All proposals are for largely symbolic “cuts” of $2 trillion to $4 trillion in a ten-year deficit that will most likely push $10 trillion.  Buy into the rosiest of scenarios, both for the 10-year deficit and all of these “deficit reduction” plans, and you’re still talking about slowing the government’s accumulation of debt to perhaps half of its current speed.  That’s not terribly meaningful when we’re already hurtling towards the real “fiscal cliff” at 300 miles per hour.

So it’s a symbolic argument, not a realistic discussion of Washington’s fiscal health, and as The Hill reports, Democrats are already salivating at the thought of pushing for even more tax increases, rather than behaving as if the “tax” side of tax-and-spend “solutions” has been settled:

Democrats say they want to raise as much as $1 trillion in new revenues through tax reform later this year to balance Republican demands to slash mandatory spending.

Democratic leaders have had little time to craft a new position for their party since passing a tax deal Tuesday that will raise $620 billion in revenue over the next ten years.

The emerging consensus, however, is that the next installment of deficit reduction should reach $2 trillion and about half of it should come from higher taxes.

A lot of this will come from eliminating or capping deductions… a strategy the Democrats just finished telling us wouldn’t meaningfully reduce the deficit, because Republicans were proposing it as an alternative to rate increases.  With rate increases in hand, the Democrats are now ready to stop pretending that deduction reforms can’t bring in more revenue… and they want those, too.  All as part of a $2 trillion deal that wouldn’t even fully eliminate the next two years of madcap deficit spending.

And the new tax burden would be yet another sucker punch to an already battered economy, reducing or even eliminating the net gain in revenue to the Treasury.  Tax simplification is a great idea, but only in the context of reduced rates – dramatic reform, rather than a thinly-disguised tax increase.

If this all goes Democrats’ way, it will be a powerful (and expensive) lesson in the folly of trying to win a political debate by granting the other side’s premises.  Note the Democrats never do that – they weren’t about to come away from the fiscal cliff debate having conceded that out-of-control federal spending is the cause of the debt crisis.  It doesn’t matter that it would have been a concession to reality.  Modern politics is animated by the refusal to make such concessions.


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