The Looming Compromise on Revenues

Against the backdrop of heightened political rhetoric among conservatives about not being willing to raise tax revenues as part of the deal to raise the debt ceiling, there is a growing acknowledgement among many Republicans in Washington as to the ultimate need to increase revenues. While many on Capitol Hill continue to parrot conservative talking points about not increasing tax revenues, the political leadership within the G.O.P. and outside the Republican Party is sounding more and more amenable to some form of raising revenue, even if it is structured as tax reform.

In an interview that came in under the radar following the collapse of the debt talks chaired by Vice President Biden, Republican insider and former congressman Vin Weber appeared on the PBS News Hour to discuss the emerging cracks in Republican opposition to raising taxes to curb the deficit. This controversy is clearly evident in the ongoing public spate between Grover Norquist of Americans for Tax Reform and Senators Tom Coburn (R-OK) and Saxby Chambliss (R-GA) over what actually constitutes a tax revenue increase and the necessity of increasing revenues. Weber stated of Republicans engaged in deficit negotiations: “And I think, if they’re allowed to define, on their own terms, what constitutes a tax increase that opens the door to a broad tax reform that might broaden the base by closing loopholes and eliminating deductions and credits and exemptions, probably coupled with a reduction in top rates to spur economic growth, but resulting in a net tax increase.” As you may recall, Norquist’s Americans for Tax Reform had circulated a Taxpayer Protection Pledge to conservative politicians for their signature ahead of the 2010 elections which many, particularly members of the Tea Party, signed. The Pledge includes the following wording “ONE, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and…TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.” Thus the pledge, a document of the utmost importance on the far right, not only prohibits tax increases; it opposes any effort to raise revenue through the elimination of loopholes, deductions and credits “unless matched dollar for dollar by further reducing tax rates.”

In the time that has elapsed since Weber’s PBS interview Speaker of the House, John Boehner (R-OH) has approached the White House with a proposal for $ 1 trillion in unspecified new revenues as part of an overhaul of tax laws in exchange for an agreement that made substantial spending cuts, including in such social programs as Medicare, Medicaid and Social Security. According to White house officials, “Mr. Boehner suggested that he was open to the possibility of $1 trillion or more in new revenue that would be generated by addressing tax issues already raised in the talks, like killing breaks for the oil and gas industry, eliminating ethanol subsidies and ending preferential treatment for corporate jets. But those changes would fall far short of the revenue goal, and the source of the rest of the money would, under what they described as Mr. Boehner’s proposal, be decided by Congress through a review of tax law changes. One official said some revenue could be generated by allowing Bush-era tax cuts for affluent Americans to expire at the end of 2012, which would produce hundreds of billions of dollars, though those savings would be offset by the costs of retaining lower rates for those below the income threshold.”  Eric Cantor (R-VA), who had walked out of the Biden talks and who has previously been a staunch opponent of raising revenues was quoted on PBS on July 6 as saying that he was willing to talk about closing loopholes and his fellow Republican in the Senate, Mitch McConnell (R-KY) likewise was quoted on the same program, “I’m open to tax reform. We need to do it broadly… Everybody’s going to have to contribute to it in one way or another.” Why even Tea Party backed Senator Mike Lee (R-UT) was on the news this evening saying that he was not necessarily opposed to raising revenues as long as it didn’t involve an increase in tax rates.

There is one other factor to consider in this whole discussion and that’s the current opinion of the American people. The latest Pew Research Polling on the subject: “Public Wants Changes in Entitlements, Not Changes in Benefits; GOP Divided Over Benefit Reductions”, reveals an American public that on a two to one basis feels that keeping entitlements the way they are is more important than reducing the deficit. Likewise similar levels of support are evident for other issues such as Medicare cost responsibilities and whether or not poor people should have their Medicaid benefits taken away. In fact if you go inside the numbers what you see is that even less affluent Republicans are now opposed to reductions in entitlements. While the political class and its attendant punditry are embroiled in discussing what to cut and where to raise revenues, the American people, even though they know that some type of reform is required, have expressed an emphatic desire to leave their benefits largely unchanged. Thus the Republican leadership in Washington has to maneuver between a public that wants it’s entitlements left alone, a Tea Party faction that has yet to understand that compromise is part of governing and the prospect of throwing our economy and the world economy along with it, into the tailspin that would result if we were actually to default on our Treasury obligations by failing to raise the debt ceiling.

The bottom line on the issue of raising revenues as part and parcel of a debt deal is that opposing such measures is a lose-lose proposition. Republicans came to power in the House in 2010 with the idea that getting the debt under control was one of the most important issues facing the nation today. Few reputable economists have taken the position that the debt could be reduced by spending cuts alone, thus revenue increases of some sort are required. To forgo increased revenue is to fail in the effort to reduce the debt, which for the G.O.P. is a loser. However, to consider revenue increases after having campaigned on no new tax increases of any type is a loser as well and as such any debt deal compromise that includes revenue increases can only be seen as a setback for the Republican Party. But beyond the fortunes of the Republican leadership are those of the Tea Party movement. Any debt deal that contains a significant increase in federal revenues can only be seen as a major setback for the Tea Party movement as well seeing as opposition to increased federal revenue has been a major reason behind the movement since its arrival on the political landscape.

Steven J. Gulitti

7/7/11

Sources:

Sen. Cornyn to Obama: Take Tax Increases Off the Table: http://www.pbs.org/newshour/bb/politics/july-dec11/budget_07-05.html

Cracks Emerge in Republican Opposition to Raising Taxes to Curb Deficit: http://www.pbs.org/newshour/bb/politics/jan-june11/goptaxes_06-24.html

Americans For Tax Reform: Taxpayer Protection Pledge;        http://www.atr.org/taxpayer-protection-pledge

Obama to Push for Wider Deal With G.O.P. on Deficit Cuts; http://www.nytimes.com/2011/07/07/us/politics/07fiscal.html?emc=eta1

Lawmakers Remain Divided on Deficit Fundamentals as Deadline Draws Closer; http://www.pbs.org/newshour/bb/politics/july-dec11/deficit_07-06.html

Public Wants Changes in Entitlements, Not Changes in Benefits; GOP Divided Over Benefit Reductions;http://people-press.org/2011/07/07/public-wants-changes-in-entitlements-not-change-in-benefits/

Boehner Must Navigate Rocky Road to a Budget; http://www.nytimes.com/2011/06/25/us/politics/25fiscal.html?emc=eta1