CQ TODAY ONLINE NEWS
July 19, 2011 – 11:27 p.m.
Boehner, Obama Talks Yield Revenue Target
By Sam Goldfarb, CQ Staff
While trying to reach a broad agreement on the budget, House Speaker
Boehner and Obama had largely agreed that revenue should equal 19 percent of gross domestic product (GDP), or perhaps a little more, by 2021, according to current and former congressional aides familiar with the discussions.
Even as Republicans and Democrats remain divided over the specifics of tax policy and the proper size of government, the two leaders were following what has become a popular strategy to bridge the parties’ differences by curbing tax breaks and using the resulting new revenue to both lower tax rates and reduce the budget deficit.
That broad approach to taxes has been an element of almost every bipartisan budget plan developed in the past year, including a proposal Tuesday from the “Gang of Six” senators that was greeted by a surprising degree of support.
By focusing on an ideal revenue target as a percentage of the economy rather than on a particular dollar amount, Boehner, R-Ohio, and Obama were evidently trying to reframe the tax policy debate and sidestep questions about what constitutes a tax increase or a tax reduction.
Setting a revenue target of 19 percent of GDP would not constitute a big departure from historical trends.
Total revenue equaled less than 15 percent of GDP the past two years, in large part because of the recession and recent tax cuts. With the economy expected to rebound, revenue would to rise to 18.4 percent of GDP in 2021, according to the most recent Congressional Budget Office estimate, provided that current rates and other tax policies scheduled to expire at the end of 2012 were extended.
That figure more or less matches the revenue target set by the budget resolution (
Other budget proposals have called for larger collections. For instance, the president’s debt commission last year proposed restructuring the tax system to bring revenue closer to 21 percent of GDP by the end of the 10-year budget window.
GOP Objections
In the end, back-channel discussions between Boehner and Obama about a large deficit-reduction package lasted about a week. The talks broke down for a variety of reasons.
GOP lawmakers who got wind of the talks balked at aspects of the developing proposal that they perceived to be tax increases. They were particularly annoyed at Obama’s insistence on “decoupling” the George W. Bush-era tax cuts for different income groups. The president wanted to preserve lower rates for those with incomes up to $250,000 and to stay silent on those with higher incomes.
Boehner’s staff was relatively unconcerned by that demand, noting that an agreement to fundamentally rewrite the tax code would supersede any decision made on the Bush-era cuts and would probably lead to lower rates for corporations and high earners.
Boehner, Obama Talks Yield Revenue Target
The Speaker’s aides were less happy with other White House positions. The two sides differed on how progressive the tax code ought to be, on whether to tax the offshore earnings of U.S. multinational corporations and on how to guarantee the tax overhaul would occur, people familiar with the discussions said. Boehner was also unconvinced by Obama’s promises to control the growth of such programs as Medicare and Medicaid.
Since the Boehner-Obama talks ended, hopes for raising the $14.3 trillion debt limit by the Aug. 2 deadline may rest on a less ambitious plan being devised by Senate leaders that conceivably would lead to the creation of a panel of lawmakers tasked with formulating a long-run fiscal strategy, including tax policy.
Tax Overhaul Plans
Under ordinary circumstances, Democrats and Republicans would be likely to disagree more about taxes than almost anything else. Yet proposals to overcome those differences are remarkably consistent.
The discussions between Boehner and Obama show that top political leaders are open not only to a tax overhaul but also might resolve fundamental questions about the size of government if they could get the backing of rank-and-file lawmakers and answer other tricky policy questions.
Proponents of raising revenue through a tax code overhaul argue that it presents obvious political advantages. Republicans would get lower marginal rates, which they say would help the economy, while Democrats would be able to provide at least some protection to the social safety net.
The president’s debt commission plan to curb tax breaks, lower rates and still pare the deficit is perhaps the most prominent example of this approach. A similar idea was also endorsed last year by a separate bipartisan panel.
Leaders of Obama’s debt commission “decided that a kind of approach that broadened the base and lowered the rates while bringing in more revenues would be a win-win situation, in which both sides would be able to accomplish major victories,” said Ed Lorenzen, a senior adviser at the Committee for a Responsible Federal Budget, a think tank, who also served as an adviser to the president’s panel.
Two other similarly structured proposals were released this week, one from Senate Budget Chairman
Areas of Disagreement
Any significant restructuring of the tax code would, in the end, require curtailing popular tax breaks, such as those that encourage homeownership and make it cheaper for workers to purchase health insurance. That prospect turns off many Democrats as much, if not more so, than its does Republicans
Aiming for a revenue target of 19 percent of GDP by 2021 might also anger many Republicans, who want the government’s tax bite as small as possible. Although administration officials point out that the House Republican budget would raise that much money beyond the 10-year budget window, reaching that level sooner would be seen by many conservatives as a tax increase.
House Ways and Means Chairman
Boehner, Obama Talks Yield Revenue Target
One area of disagreement concerns competing claims about whether an overhaul would increase revenue by contributing to overall growth in the economy. Many Republicans are advocates of this “dynamic scoring” approach to budgetary effects, and the president’s fiscal commission was purposefully open-ended on the subject, Lorenzen said. CBO, however, has consistently said that methodology is not appropriate for official budget scorekeeping.
And even if CBO did try to account for the broad economic consequences of legislation, rather than limit analysis to smaller scale effects, the results would probably be insignificant, said James Horney, a budget analyst for the left-leaning Center on Budget and Policy Priorities and a former CBO official.
Should the efforts of a new fiscal policy commission fail to yield a change in tax policy, Congress is likely to find itself at another legislative crisis at the end of 2012, when current tax rates are scheduled to expire and the debt ceiling may again need to be raised. At the moment, both sides appear to harbor doubts that they can win that battle.