The Strange Republican Shift on Taxes

There's been an odd change in Republican rhetoric in the last few weeks about taxes. As we all know, for a couple of decades now, particularly since George H.W. Bush went back on his "Read my lips" promise and agreed to a tax increase to bring down the deficit, Republicans have been uncompromising and dogmatic that taxes must never be raised in any form, ever. That's part of the pledge Grover Norquist has made nearly all of them sign—not just that rates should only ratchet down, but also that they will "oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates." With the bitter taste of defeat still lingering in their mouths, many have realized that there is going to be some increase in the wealthy's taxes. But to hear them talk now, you'd think that they don't much care how much people pay in taxes, so long as the top marginal income rate doesn't go up. Here's Karl Rove writing in The Wall Street Journal, explaining President Obama's nefarious plan to divide them:

But the president is now less interested in raising revenues than in raising marginal tax rates on top earners. He apparently believes that Republicans, in a weakened state and defending an unpopular position, might buckle on a central GOP tenet, opposition to any increase in marginal rates. That might kick off a Republican civil war, resulting in divisive party primaries in 2014 that leave the president's opposition even more weakened and produce more subpar candidates like this year's Republican Senate candidates in Indiana and Missouri.

So the "central GOP tenet" isn't opposition to tax increases, it's "opposition to any increase in marginal rates." That's like a baseball manager saying the point isn't whether his defense keeps the other team from scoring runs, it's just that they won't stand for homers.

We might blame Mitt Romney, who claimed during the campaign that he would lower everyone's tax rates, but revenue wouldn't go down one cent, because he'd bring in all kinds of new revenue by limiting "loopholes and deductions" just for the rich. In practice, that meant (though no one noticed) that he was proposing a huge tax increase on the wealthy. Yet no Republicans complained that Romney was a tax-raiser, either because they didn't grasp what he was saying, or (more likely) that they didn't believe he'd try to limit those loopholes and deductions, particularly since he refused to name even a single one he'd get rid of.

Perhaps defending Romney got Republicans used to the idea that their belief in low taxes only applies to marginal income tax rates. But what I'd like to hear is how exactly they justify this shift. What is so sacrosanct about rates in particular? Let's say Worthington G. Republican paid $130,000 in taxes last year on his $1 million income. If next year his marginal income tax rate stays the same, but because some of his deductions and loopholes are eliminated he ends up paying $200,000 in taxes, wouldn't conservative ideology dictate that great harm has come to him and the country he so ably serves through his job-creating investments? Isn't the amount Worthington pays the whole point, not the rate he pays? After all, every extra dollar he gives to the federal government goes to mooching welfare recipients, people gauche enough to need Medicaid, and who knows what other kinds of government waste.

If anything, you'd expect Republicans to take just the opposite position. Consider the analogy to corporate taxes. The United States has one of the highest nominal corporate tax rates in the world, but the real corporate tax rate is extremely low, because the law is so riddled with loopholes that corporations have no trouble cutting their taxes down, in some cases down to zero and even beyond. Most notoriously, the country's largest corporation, General Electric, not only paid no taxes on its $14.2 billion in profits in 2010 but got a refund from the Treasury of $3.2 billion. Many of the lawyers and accountants working for G.E. are the very people who wrote into the tax code the complexity that allows them to do that.

So G.E. and other corporations like it are perfectly happy for there to be a high corporate tax rate, so long as they can keep the system complex and manipulable enough for them to avoid paying taxes. Similarly, many wealthy Americans are burdened not one bit by the top marginal income tax rate. You could raise it from its current 35 percent to the 39.6 percent it was under Bill Clinton, and Mitt Romney's taxes wouldn't go up at all. So you'd think that Republicans would be saying, sure, go ahead and raise the top rate, so long as we don't mess with all those delicious loopholes and deductions that allow our people to bring their taxes down.

I'm genuinely puzzled by the Republican position on this. Maybe you could argue that it's nothing more than an accommodation to reality: They know they're going to lose this battle, so they're trying to frame it in a way that makes it seem that they're still standing firm on principle. If so, it doesn't seem like a very sound strategy, since right now it looks like an increase in the top rate is the one thing that is almost certain to happen. So in the end, they'll have retreated to a hill they end up losing anyway.

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