Interest is mounting on Capitol Hill to avert a much-feared ‘fiscal cliff‘ at year end by postponing the scheduled expiration of trillions of dollars’ worth of tax cuts for six months in return for a commitment from lawmakers to reform entitlement programs and the tax code.
Senate Democrats and some Republican House leaders may be “kicking the can down the road,” but talks are intensifying with special interest groups to keep $8 trillion in combined tax increases and spending cuts from automatically kicking in beginning the first week of January.
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In a speech Monday, Senate Finance Committee Chairman Max Baucus, D-Mont., said he sees no chance for a major budget, tax and entitlement reform agreement before the November election. He also signaled a strong interest in using the lame-duck session to lock Congress into an agreement to complete a major overhaul of the tax code and entitlements by mid-2013, or face the expiration of all the Bush-era tax cuts and other popular tax provisions.
Baucus described the current tax code as the “worst of all worlds” and noted that tax breaks and loopholes have doubled since the last time Congress overhauled the tax code, back in 1986 during the Reagan administration. He said there is a serious mismatch between spending needs and revenues, and that any comprehensive effort to bring down the deficit and control the debt must include additional tax revenues – a view anathema to the Republicans’ anti-tax stand.
“We simply don’t raise enough revenue,” he said during an address at the Bipartisan Policy Center.
As part of a deal last summer to cut spending and raise the debt ceiling, President Obama and Congress agreed that $1.2 trillion of future spending savings or “sequestration” would take effect next January unless House and Senate members could agree on how best to achieve the savings. A “super committee” of lawmakers failed to reach an agreement late last year, and now Congress is saddled with those cuts unless they change the law.
A TEMPORARY REPRIEVE?
Baucus sees the virtue of extending some or all of the tax cuts through mid-2013, to give Congress and the administration sufficient time to reach agreement on major tax and entitlement reform. The continued threat of a massive tax increase would be a strong incentive for Congress to address the government’s problems of overspending and inadequate revenues that are driving up the deficit and debt.
“Sequestration is very important and I’ve said it’s a good point of leverage to get results,” Baucus told reporters after his speech. “You shouldn’t give up that leverage. I’m not saying how it should be resolved, but it’s leverage that should not be given up easily.”
House Ways and Means Committee Chairman Dave Camp, R-Mich., recently endorsed a strategy for linking an extension of the Bush-era tax cuts and other expiring tax breaks to “fast-track procedures” to compel Congress to enact comprehensive tax reform next year. Congress has embraced this approach 34 times over the years, according to Camp, including most recently as part of the Trade Promotion Authority.
“This is an idea House Republicans support, the Speaker [John Boehner] endorsed . . . and I urge the Senate and the president to get behind it as well,” Camp said in a May 17 speech. “Doing so will send a clear, strong message to the markets, to employers and families that Washington is serious about reforming our tax code and putting us on a path to sustained economic growth.”