GOP Shifts Strategy in Deficit Effort
By Joseph J. Schatz, CQ Staff
By floating a tax overhaul plan that would raise more than $300 billion in new revenue,
Republicans on the joint deficit reduction committee have tried to seize the mantle of
compromise after resisting tax increases for weeks.
But with many lawmakers in both parties wary of handing the other side a victory heading into
the 2012 election, it remains far from clear whether the GOP proposal will produce momentum
for a budget-cutting package that includes both entitlements and the tax code.
That much was evident as Democrats questioned both the substance and the math behind the
latest proposal — which aides say would raise $250 billion in new revenue from the individual
tax code — and argued that it falls well short of what is needed to reach a deal.
“I would not characterize it as substantial yet. But it’s a change,” said Sen. John Kerry, D-Mass.,
a member of the Joint Select Committee on Deficit Reduction, without addressing the plan’s
specifics.
Whether designed as a serious offer or a political ploy to shield Republicans from blame if the
committee cannot reach a deal, as argued by some Democrats, the proposal appears to reflect
newfound flexibility.
The plan is part of a broader bid by Republicans to meet the panel’s $1.2 trillion deficit reduction
target by trading a tax overhaul that would raise revenue — in which lawmakers would eliminate
some tax benefits to broaden the base of taxable income, while also reducing rates — in return
for cuts to Medicare and Medicaid.
Democrats on the panel last month proposed a $3 trillion budget-cutting plan that included $1.3
trillion in tax increases. Republicans countered with a $2.2 trillion plan with $640 billion in
revenue, little of which would be scored as tax increases by the Joint Committee on Taxation.
One source said the new GOP proposal, promoted in part by Sen. Patrick J. Toomey, R-Pa.,
would additionally raise about $50 billion through an overhaul of the corporate tax code and $40
billion from a change in the consumer price index used to calculate cost-of-living adjustments in
federal benefits and changes in tax bracket levels.
It remained unclear, as Republicans talked among themselves and with Democrats, whether their
proposal would have the deficit committee negotiate the terms of a tax overhaul or hand that task
over to the standing committees with jurisdiction over tax policy.
Toomey, a former president of the conservative Club for Growth, is viewed as possessing more
anti-tax bona fides than many others in his caucus.
Republicans also say a tax overhaul would raise about $100 billion more in revenue by growing
the economy, although the Joint Tax Committee does not count such revenue in its official
scorekeeping estimates.
A Victory for Democrats?
A GOP offer with a significant amount of real, quantifiable tax revenue would be a seeming
victory for Democrats, who have long insisted that any deficit reduction deal include a
“balanced” mix of spending cuts and revenue increases, with the wealthiest Americans footing
some of the bill.
And it might not be an easy sell for conservatives who balked at “grand bargain” attempts earlier
this year.
Yet from a political standpoint, it also may put some Democrats in an unexpected — and
politically awkward — position of acknowledging GOP flexibility after weeks of accusing the
party of kowtowing to anti-tax advocates. Just days ago, Sen. Charles E. Schumer, D-N.Y.,
predicted that deficit talks would fail due to GOP resistance to taxes.
So, after weeks of GOP intransigence on the question of taxes, Democrats are greeting the GOP
proposal with caution and skepticism. They have not forgotten the unsuccessful effort in the
summer by House Speaker John A. Boehner, R-Ohio, to negotiate a $3 trillion deficit reduction
deal with President Obama that would have raised revenue by $800 billion.
Democratic aides blasted the new GOP plan, in part because sources said it would cut the top
individual income tax rate to 28 percent in 2013. The top rate is currently 35 percent, and is set
to revert to the pre-2001 level of 39.6 percent in 2013, when the Bush-era tax cuts would expire.
Allowing the 2001 and 2003 tax cuts expire for families making more than $250,000, as many
Democrats prefer, would raise about $800 billion.
Moreover, a senior Democratic aide called the GOP plan “not serious,” questioning whether its
individual tax provisions would actually produce $250 billion in new revenue.
“We’ve been very clear that there has to be some additional tax revenue. It has to be able to be
scored by CBO,” Kerry said. “It has to be measured. That requires a certain kind of revenue. And
we’ve been very clear from Day 1.”
Still, one GOP aide strongly rejected the idea that Democrats on the joint committee had simply
dismissed the latest Republican offer. The aide said bipartisan groups of lawmakers were
continuing to spend long hours picking through its details.
For their part, Democrats offered a new proposal on Monday night, according to one senior
Democratic aide. That plan, the details of which were not clear, would cut spending by about $1
trillion and also increase revenue by about $1 trillion.
Adding Up the Revenue
The question of revenue has been at the heart of the joint committee’s gridlock over the past
week. Democrats argue that revenue should make up a large proportion of any final deal, and
they note that Obama’s debt commission last year proposed a far-reaching deal with 69 percent
of its savings from spending cuts and 31 percent from revenue.
The priority for Democrats is taxes — not non-tax receipts such as Medicare user fees and
proceeds from government spectrum sales, which accounted for much of the $640 billion in
revenue in the GOP’s earlier, $2.2 trillion deficit reduction offer in October.
The GOP’s new proposal includes $700 billion in spending cuts and $500 billion in revenue.
Provisions include raising money through the sale of public lands and increasing premiums for
the military’s Tricare health care network, according to a Democratic aide. Yet the majority of
the revenue in the latest GOP proposal appears to come from taxes.
Many Republicans, meanwhile, have been walking their own fine semantic line in recent months.
Many have signaled a willingness to broaden the tax base by repealing or restricting tax
deductions and credits in return for lower tax rates. Some have indicated a willingness to use
some of the resulting revenue to reduce the deficit, producing a “net tax increase” that might
violate the anti-tax pledge many Republican lawmakers ascribe to.
Others have fudged budgetary distinctions, suggesting that they would only accept revenue
generated by economic growth.
With the joint committee’s Nov. 23 deadline to meet their deficit reduction target, coming days
may force both sides to determine whether it is in their interests to accept a deal — or perhaps
fall back to a smaller package of budget cuts that might be just as difficult to negotiate.
Sam Goldfarb, Paul Krawzak and Alan K. Ota contributed to this story.
Reprinted from CQ HealthBeat