July 6, 2011
Republicans are getting heat from an increasingly aggressive President Obama for their refusal to consider even modest revenue increases as part of a major deficit reduction package. But as the White House and Congress resume budget and debt ceiling talks this week, GOP leaders say they will stand firm against any tax increase, even if it leads to an impasse that triggers the first U.S. default in history.
House Republican Policy Committee Chairman Tom Price of Georgia insisted that tax hikes are off the table. “Republicans in Washington have been clear: we will not entertain the idea of raising taxes as part of a debt ceiling package,” he said in a statement.
Yet Obama expressed optimism that a deal was within reach, even as he renewed his demand of a week ago that Republicans accept a “balanced approach” that includes tax hikes or revenue raisers as well as deep cuts in government services and entitlement programs to bring down the long-term deficit.
“This will require both parties to get out of our comfort zones and both parties to agree on real compromise,” the president said, in announcing that the bipartisan talks would resume on Thursday at the White House. “I’m ready to do that. I believe there are enough people in both parties that are ready to do that.”
The Republicans my-way-or-the-highway stand on taxes has earned them kudos with the Tea Party and many of the freshmen conservative House members who have vowed to tackle the deficit without resorting to tax increases that they say would hurt the economy and discourage business expansion. However, conservative New York Times columnist David Brooks warned on Tuesday that if the talks collapse, independent voters will conclude that “Republican fanaticism” on taxes caused a default that would “stain their nation’s honor.” Fiscal Times columnist Eric Schurenberg agreed that from a conservative point of view, the best thing for Republicans to do is to stop playing chicken over the deficit and debt ceiling and accept a compromise with the Democrats, even if it means accepting new revenues.
Ron Bonjean, a Republican strategist and former GOP congressional leadership spokesman, said that both parties stand to lose a lot if negotiators fail to reach a comprehensive agreement before the August 2 deadline that was set by Treasury Secretary Timothy Geithner.
“The Democrats are locked in a hard place politically because if they go along with spending cuts and don’t receive something in return that they can sell to their side, they are in a huge bind.” Bonjean told The Fiscal Times. “Conversely, if Republicans agree to tax increase they will be in a huge bind with the Tea Party throughout the primaries. There is pressure on both sides.”
“I don't think either side wins if we default -- blame will be shared equally,” said G. William Hoagland, a former Senate Republican policy adviser. “I don’t believe however there will be a default . . . but it certainly looks dicey today.”
Digging in Their Heels
Senate Republican Leader Mitch McConnell of Kentucky insisted that his party would hold fast, and that Obama is badly misreading the sentiment of voters who want steep deficit reduction but without having to pay higher taxes.
“Our view is that the way you solve a debt crisis is to go on a diet — not a shopping spree,” McConnell said on the Senate floor. “We don’t think the voters sent a wave of Republicans to Washington last November because they wanted us to raise taxes — they sent us here to restore some sanity. But the President and his Democrat allies in Congress don’t yet seem to get it. Right now they’re calling for a tax on aircraft manufacturers because they think it’s good politics. It’s their cheap attempt at trying to make anybody who opposes it look bad.”
Senate Majority Leader Harry Reid, D-Nev., responded that the U.S. stands on the brink of default and asked both parties to come together to hammer out a deficit reduction deal and raise the debt ceiling. “We no longer have those months – or even weeks – to avert this catastrophe,” Reid said in a speech on the Senate floor. “We have days. Yet my Republican colleagues have walked away from the negotiating table when we were nearing a solution and so close to disaster. Why? To protect oil companies. To protect the owners of yachts and corporate jets. To protect corporations that ship jobs overseas. To protect millionaires and billionaires from paying their fair share.”
According to Congressional staff, who did not wish to be identified, there has been no shift in sentiment away from the official Republican position that a debt ceiling deal cannot include a tax increase, even under the rubric of eliminating special preferences for corporate or other taxpayers.
Notwithstanding the 73 to 27 vote in the Senate on June 16 to cut ethanol subsidies, a $6 billion-a-year support program whose repeal was sponsored by Sen. Tom Coburn, R-Okla., “Republicans don’t want to raise any taxes,” said one high-ranking staffer. “I’ve heard some Republicans say they’re open to an increase in fees. But limiting itemized deductions [one of the proposals made last week by President Obama], I can’t see that going anywhere.”
Over the weekend, Sen. John Cornyn, R-Texas, head of the Republican Senatorial Campaign Committee, said that he and other Republicans would be open to discussing reforms to the tax code later this year to eliminate wasteful tax breaks and deductions, provided the changes were “revenue neutral” and didn’t result in an overall increase in taxes. But that approach would do nothing to reduce the $1.5 trillion annual budget deficit.
With less than four weeks to go from the Treasury set August 2 deadline, the goal for budget negotiators is to find at least $2 trillion in savings over 10 years as a prerequisite for raising the $14.3 trillion debt ceiling. Obama said he and his team had a series of discussions with congressional leaders over the July 4th holiday weekend on the status of the budget talks. “We made progress and I believe that greater progress is within sight, but I don’t want to fool anybody that we still have to work through some real differences,” he said.
House Speaker John Boehner, R-Ohio., who met secretly with Obama over the weekend, welcomed the President’s invitation to the White House on Thursday but was skeptical and warned “such discussions will be fruitless until the President recognizes economic and legislative reality” that a deal including tax increases does not have enough votes to pass the House.
Obama said the two sides must reach an agreement within two weeks to pass legislation before August 2, when the Treasury Department says the government risks defaulting on its debt. He rejected talk of an interim deal that would get the government past the deadline without settling some of the longer-term issues. “I don’t think the American people sent us here to avoid tough problems,” he said.
Considerable progress was made on the deficit reduction front until two weeks ago when House Majority Leader Eric Cantor, R-Va., dropped out of the seven member bipartisan group led by Vice President Joe Biden. The gang had identified approximately $1.7 trillion over 10 years in savings from the federal budget including farm subsidies, federal employee retirement plans and student aid. But again, the sticking point was taxes. Cantor said they were off the table and negotiations had to be kicked up to the President. Since then, budget negotiations have been at an impasse.
Despite the Republicans adamant tone, some liberals continue to express hope that the ethanol vote in the Senate was a harbinger of a more accommodating attitude on the part of Republicans. “The ethanol vote said at least some Republicans are willing to vote for something that raises revenue,” said Donald Marron, director of the Brookings Institution-Urban Institute Tax Policy Center. “How many if any House members are willing to do that remains to be seen.”
But for that to happen, Republicans will have to break with the anti-tax ideologues calling the shots from conservative think tanks, which receive substantial funding from corporate special interests. James Dwight Foster, a senior fellow at the Heritage Foundation, said the chance of the ethanol subsidy being repealed in the House was “virtually zero.” “That’s a tax hike,” he said.
Total tax collections are now running around 14.5 percent of gross domestic product, which is about 3.5 percentage points below the annual average between 1971 and 2010, according to the congressional Budget Office. Spending is currently running about 24 percent of GDP, again, about 3.5 percent above recent averages. Both extremes are largely due to the lingering unemployment and depressed personal consumption patterns caused by the Great Recession and the prolonged housing slump.
The administration’s preferred list of tax increases includes:
- $290 billion over ten years from limiting itemized deductions to 15 percent of income for families earning over $250,000 a year ($200,000 for individuals);
- Changing corporate inventory accounting rules, which would raise $97.5 billion over ten years, according to the Congressional Budget Office;
Eliminating special tax breaks for oil and gas exploration, which would raise $45 billion over ten years
Larry Sabato, the University of Virginia political scientist, believes that raising revenues will be a non-starter for the Republicans. “For most GOP members of Congress, this is an easy choice,” he said. “They either ran as Tea Party candidates or fear a primary challenge from the Tea Party in 2012. They’ll pick the views of the party faithful—no tax increases—over advice offered by a New York Times columnist, hands down.”
Political analyst Stuart Rothenberg sees the outcome as less cut and dried: “The key is how the game of chicken ultimately plays out. If Republicans look inflexible and prisoners of their ideology, they certainly could suffer some damage. But if Democrats end up looking like big taxers or, worse, if the president looks insufficiently engaged and effective [or overly partisan], then his party could suffer plenty of damage of its own. There is plenty of risk to go around…. Results matter more than the current dance the two parties are doing.”
Read more on the debt ceiling from The Fiscal Times
Three Reasons Conservatives Must Cut a Debt Limit Deal (The Fiscal Times)
Final Countdown Begins in Debt Ceiling Crisis (The Fiscal Times)
Schumer Accuses GOP of Undermining the Economy (The Fiscal Times)