Who's Afraid of the Fiscal Cliff?

The market may tank. Let the party of high taxes explain it

by Patrick J. Buchanan

Were the average Republican asked for a succinct statement of his views on taxation, he or she might respond thus:

"U.S. tax rates are too high for the world we must compete in. The tax burden – federal, state, local, together – is too heavy. We need to cut tax rates to free up our private and productive sector and pull this economy out of the ditch."

This core conviction holds the party together.

Yet today the leadership is about to abandon this conviction to sign on to higher tax rates or revenues, while the economy is nearing stall speed. Yet, two years ago, President Obama himself extended the Bush tax cuts because, he said, you do not raise taxes in a recovering economy.

Why are Republicans negotiating this capitulation?

Because they have been warned that if they do not sign on to a tax hike, they will take us all over a fiscal cliff.

If we go over, Republicans are being told, you will be responsible for tax hikes on all Americans as the Bush tax cuts expire on Jan. 1.

You will be responsible for a surge in tax rates on dividends, interest, capital gains, estates.

You will be responsible for an automatic sequester catastrophic to the national defense.

This is the pistol Obama is pointing at the GOP. This is extortion.

Republicans are being told that they either vote for something they believe to be wrong and ruinous – or get something worse. Pay the ransom, fellas, Obama is demanding, or take the blame for a second recession.

Like the Panama Canal debate that made Ronald Reagan a hero, this is a defining moment. No GOP senator who agreed to the Carter-Torrijos treaty ever made it onto a national ticket.

What are the perils for Republicans who sign on to an Obama deal?

They will sever themselves permanently from much of the base of the party. While their votes may ensure that tax rates or revenues rise, they will have no assurance that the promised spending cuts will ever be made. Even Reagan fell victim to this bait-and-switch.

Then, if the tax hikes slow the economy, Republican collaborators will share the blame. Not only will they have gone back on their word, they will have damaged the recovery. What would be their argument for re-election?

If you believe higher tax rates or tax revenues would be like poisoning an already weak economy, why would you collaborate in administering that poison? Why not just say no?

Having lost the presidency and seats in both houses, Republicans should not partner with a president with whom they disagree on principle.

They should act as the loyal opposition in a parliamentary system whose duty it is to oppose, to offer an alternative agenda and to wait upon the success or failure of the government, as Labor is doing in Britain and the conservatives are doing in France.

What should Speaker John Boehner do?

Tell the president politely that America's problem is not that we are taxed too little but that we spend too much – and the GOP will not sign on either to tax rate or tax revenue increases. For Republicans believe that would further injure the economy – especially an economy limping along at between 1 and 2 percent growth.

Then Boehner should depart the White House, go back up to the Hill and urge his Republican caucus to do two things.

Pass an extension of the Social Security payroll tax cut and block its automatic rise from 4.2 percent of wages to 6.2 percent. To raise that tax now and scoop off the discretionary income of most of America's families in this anemic economy makes no sense economically or politically.

The House should then vote to extend the Bush tax cuts for another year, with a pledge to do tax reform – lowering tax rates in return for culling, cutting or capping deductions for the well-to-do in the new year.

Then let Harry Reid work his will. If the Senate votes to let Social Security taxes rise, let Harry and his party explain this to the middle class that gets hammered in January. If the Senate votes to let the Bush tax cuts lapse for those over $200,000, decide in the caucus whether to negotiate – or to go home for Christmas and New Year's.

As for the automatic sequester that would impose $100 billion in cuts next year, half in defense, do nothing. Let it take effect. The budget has to be cut, and while these cuts are heavy on defense, the depth and mixture can be adjusted in the new year.

If Republicans walk away from tax negotiations with the White House, market investors, anticipating a sharp rise in tax rates on dividends, interest and capital gains next year, will start dumping stocks, bonds and investments to take advantage of the last year of lower taxes.

The market may tank. Let the party of high taxes explain it.