AMERICAN.COM

Republican debt-ceiling negotiators have taken a firm stand against any deficit reduction package that includes tax increases, even if the tax increases are modest and accompanied by large reductions in the growth of Social Security, Medicare, and other entitlement spending. Unfortunately, maintaining this stance may cause Republicans to miss an opportunity to lower Americans’ long-run tax burden.

It’s important to understand the consequences of turning down a deficit reduction package with, for example, 80 percent spending cuts and 20 percent tax increases. The additional federal debt issued in the wake of such an outcome must be serviced with future tax increases or spending cuts. Is there any reason to think that future Congresses and presidents will draw on spending cuts to finance more than 80 percent of the debt service? If not, then trying to protect taxpayers by rejecting such a package today is self-defeating. Moreover, delay has its own costs. Regardless of how the additional debt is ultimately serviced, its issuance is likely to reduce national saving and, as the economy recovers and interest rates rise, to crowd out investment.

Some may suggest waiting to tackle the fiscal imbalance until Republicans win control of the White House and both chambers of Congress, when they will have a free hand to adopt sweeping entitlement cuts unaccompanied by tax increases. Aside from ignoring the Republican Party’s track record, this strategy fails to recognize the constraints imposed by public sentiment. In view of the limited public support for large entitlement reductions, it is unlikely that one political party will ever be able to enact such reductions on its own. Real entitlement restraint is likely to be achieved only through a bipartisan agreement, for which a revenue component is the price of admission.

It is unclear whether such an agreement is feasible at this time. Every expression of flexibility by President Obama seems to be followed by an expression of inflexibility by congressional Democrats. But, if there is an opportunity to adopt a package with large entitlement cuts and modest tax increases, Republicans should seize it. Of course, they should work to limit the scope of tax increases and, as I recently discussed, shape them to be less harmful to economic growth.

The goal of permanently holding federal revenue to its historic share of GDP has an understandable appeal. As I have noted, though, the massive cutbacks in future entitlement spending required to achieve that objective are unlikely to ever win public support. It is tempting to hold out against tax increases and simply hope that the necessary entitlement cutbacks will someday magically materialize. But, we should not allow wishful thinking to block an opportunity to take the one step that can actually limit future tax increases—reaching an agreement here and now to cut entitlement spending.