Politics, they say, is the art of compromise. You give something to get something. Everyone ends up with half a loaf. You may not get everything you want, but everyone comes out ahead.
That’s the theory, anyway. And sometimes it even works out in reality. Usually, though, someone winds up on the losing end -- not only no better off than before, but worse.
Which brings us to the proposed “grand bargain” on the federal budget.
The idea, backed in a letter to Congress by the CEOs, presidents and chairs of more than 80 top U.S. corporations, is that policymakers bring the budget back into balance through a mixture of spending cuts and tax hikes.
Seems sensible, right? It’s exactly what you would do to fix a family or company budget: spend less, earn more. But if history is any guide, it won’t work out that way.
President Reagan found that out the hard way. He had, as promised, managed to get a package of tax cuts through Congress shortly after being elected. But the cuts were being phased in gradually, so the economy was still suffering in 1982. Reagan faced intense pressure to agree to raise taxes as part of a deficit-reduction plan. His team began meeting with representatives of House Speaker Tip O’Neill to hammer out a deal.
The result: a proposal for … you guessed it, a grand bargain. Congress would cut spending by $3 for every $1 in tax hikes (on corporations, not individuals) that the president was willing to accept. Reagan naturally abhorred the idea of any kind of tax hike, however modest. But -- believing it was the best deal he could get, and that O’Neill’s team was acting in good faith -- he reluctantly agreed.
So the Tax Equity and Fiscal Responsibility Act of 1982 became law. Unfortunately, it proved to be low on both responsibility and equity.
“You don’t have to be a Washington veteran to predict what happened next,” former Attorney General Ed Meese writes in an op-ed published last year. “The tax increases were promptly enacted -- Congress had no problem accepting that part of the deal -- but the promised budget cuts never materialized. After the tax bill passed, some legislators of both parties even claimed that there had been no real commitment to the 3-to-1 ratio.”
In fact, Congress added insult to injury: spending for fiscal year 1983 was some $48 billion higher than the budget targets.
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