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Bloomberg’s Joshua Green speculates about a “looming Republican crackup” over the sequester as anti-tax GOPers square off against pro-defense GOPers. First of all, these are not two neatly divided groups. And there are plenty of Republican hawks who worry that the the rising national debt will eventually impede America’s power projection capabilities. Well, let Green make this case:
Antitax conservatives are fine with the cuts, since they’d continue to shrink the government. But defense-minded Republicans are increasingly terrified at the ax about to fall on the Pentagon’s budget. Although it’s been overshadowed by other fights, this showdown between antitax and pro-defense Republicans has been brewing for a long time. …The clash between the two wings of the Republican Party will only intensify as the March deadline approaches. Obama may put off that reckoning if he succeeds in delaying the sequester for a few months. But the past two years have demonstrated that the Republican crusade to shrink government will eventually force it to reconcile this tension within the party.
It appears the president wants a 1:1 tax hike-to-spending cut ratio. And he will make the case that Republicans would rather hurt the military than close tax loopholes or cut corporate pork. And maybe such arguments will be effective. Chris Krueger of Washington Research Group in a research note today:
We believe that there is a slightly better than 50% chance that a sequester punt will be cobbled together around the March 27 deadline that will soften the blow of sequester and keep the government open for at least a month. … The March 27 “deal” will probably look something like the New Year’s Day Fiscal Cliff Deal (ATRA – also known as Biden-McConnell) that delayed the sequestration order from January 2 until March 1.
The delay reduced the sequester by $24B, but that was split between new revenue, from IRA Roth conversions, and spending cuts, which were then spread over two years. The cuts were split between FY13 ($4B) and FY14 ($8B) – meaning two-thirds of the cuts were put off for another day.
So long as the “revenue” needed in the deal is along the lines of the IRA Roth revenue (think pension reform or other accounting shenanigans), it could be relatively palatable to Republicans. We are still in the rhetoric phase of the negotiations where all sides are totally dug in. Once the pain of sequester begins and constituents begin to complain, politicians tend to bend quickly.
Look at it this way: The White House thinks it can get $500 billion to $600 billion in new tax revenue over a decade from limiting tax breaks on the rich. And probably another $300 billion for corporate tax reform. If that is what Obama pushes, it would be helpful for Republicans — as some have mentioned — if the GOP had its own plans for that money, such as expanding the child tax credit or some other middle-class friendly policy.
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