13 April 2012

The Republican Party's Credit Rating

For more than a decade we've been cutting taxes and while it is not clear that it has done much to create jobs, it has clearly helped to create debt. Tax revenue is now below 15% of GDP, the lowest it has been in the last half century. (The average during that time has been about 18.5% of GDP.)

So why does Romney continue to advocate more tax cuts? Before I answer that, let me make a brief digression.

Santorum outraged liberals and made many Republicans nervous with his social conservatism. Voters heard him promise to ban abortions for rape victims, ban gay marriage, and even ban contraceptives (whether they heard him accurately is a separate matter). Yet he made the primaries a real contest, suggesting that he represents a good percentage of Republicans.

Meanwhile, here in San Diego, two of the four most plausible candidates for mayor are Republican. Both are gay and at least one took advantage of California law to marry her partner. (She says that it was harder for her to come out to her parents as a Republican than to come out to them as gay.)

Republicans are not all social conservatives but they do all rally around the cry to lower taxes. Which brings me back to Romney.

In an overlooked moment of the campaign, Romney came out for a tax hike of about 3 to 4 percentage points of GDP. That is, he said, "I would support a balanced budget amendment that might set taxes and spending at about 18 to 19 percent of GDP." Remember that taxes are now less than 15% of GDP and you can see in this a fairly significant tax hike. (Admittedly, one that would be accompanied by a fairly hefty spending cut.) In theory, Romney realizes the need to raise taxes as well as cut spending in order to arrive at a balanced budget. So why would he never make this explicit?

Agreement on tax cuts may be all that Republicans have in common. As soon as a candidate walks away from this, he walks into a world of division where Republicans in gay marriages argue with fundamentalists who think that tolerance of gays and contraceptives have ruined this country. That's a waste land where majorities are lost. So, no matter how little sense it makes fiscally, no matter how much it drives up deficits, Republicans will never stop cutting taxes. It is the glue that holds them together.  The problem with this is that what puts the least strain on the Republican Party puts the most strain on America's fiscal health, raising the question of whose credit rating will be the first to be irreparably harmed: the US government's or the Republican Party's.

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