Question Day: Can Republicans Calm Down on Taxes?

Here's why both parties in Congress have an incentive to compromise on trade and even tax reform.

Let's talk about taxes.

Photographer: Andrew Harrer/Bloomberg

First question. Commenter doverby asks:

I've heard pundits talk about the areas of agreement between the President and Republicans in the SOTU address, like trade deals and (parts of) tax reform. I'm very pessimistic of anything happening because of a lack of incentive for Republicans. Is there any incentive for Republicans to compromise with Obama, since the credit will probably be given to him anyway?

Great question, and, yes, there are incentives for Republicans to compromise.

There are two ways to think about this.

One is thinking about it for the Republican Party as a whole. Parties are, among other things, collections of organized interests, which have stakes in government policies. Republican-aligned interest groups -- business -- may strongly want trade deals, for example. They may care more about getting substantive gains than they care about the long-term prospects of the Republican Party.

What’s more, these organized interests may believe (correctly, in my view) that passing a few measures over the next 18 months won’t have much effect on Barack Obama’s approval ratings or on the 2016 elections. This is especially true, as I said the other day, if eventual deals are made after the usual ugly legislative process. Yes, if Republicans praise the president, it could help him, but politicians are perfectly capable of cutting deals without praising one another. 

The other part of this is from the perspective of individual legislators. They aren’t indifferent to the outcome of the 2016 presidential election (after all, a Democratic landslide might hurt Republicans in other races), but they care more about their own re-election. And unless they are only focused on primaries, where bashing Obama might be enough, they’re going to want to have some accomplishments to brag about in the general election. This means they’ll want to find at least a few areas of compromise, since they can't do anything without the president's signature.

In short, even if national credit goes to Obama, individual members of Congress can grab some local credit. 

None of this means we will have deals on these or other items. Incentives (for both parties) run both ways, and tax reform in particular seems unlikely because of how costs and benefits are apportioned. But, yes, parties have reasons to cut deals on quite a few issues.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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