CQ TODAY ONLINE NEWS
Sept. 9, 2011 – 10:13 p.m.
Single Message on Taxes Eludes Republicans
By Sam Goldfarb, CQ Staff
Republicans are struggling to unify behind a tax cut strategy to boost the economy, a marked departure for a party that usually marches in lock step on tax issues.
After a summer break filled with constituent worry over the slump in the jobs market, GOP lawmakers agree that the tax code needs to be revamped to encourage economic growth. But so far, they cannot seem to agree on how.
Republicans have shown little enthusiasm for a small-business tax break proposed by their own leadership, have reacted uncertainly to tax cuts proposed by President Obama and have continued to be at odds over whether multinational corporations should be given temporary tax relief on the earnings they bring to the United States from other countries.
In addition, although Republicans agree that the tax code should be overhauled by eliminating tax breaks and lowering overall rates, they have sent decidedly mixed signals about whether such a rewrite should bring in additional revenue.
To be sure, Republicans have not abandoned their basic anti-tax argument. Nevertheless, a philosophical divide has emerged within the party, pitting some GOP lawmakers — who believe the economy could respond favorably to temporary tax measures — against more traditional conservatives, who argue that only a simplified tax code will encourage businesses to make investments and create jobs.
A key member of the group that supports aggressive, immediate action is House Majority Leader
Currently, companies can avoid paying U.S. tax on foreign earnings as long as those earnings are kept offshore. Some lawmakers and tax experts argue that multinational companies would bring their cash back to the U.S., and spend it on domestic efforts, if the repatriation barrier were temporarily lifted.
Many U.S. multinational companies have been lobbying for this kind of tax relief, and the U.S. Chamber of Commerce released a study last week that found a repatriation tax holiday could help the economy grow by an additional 1 to 4 percent.
As with similar previous reports, the Chamber’s findings were trumpeted by Cantor aides but elicited little reaction elsewhere. A red flag for some Republicans may have been that the Chamber used economic modeling techniques similar to those used by the Congressional Budget Office to analyze the economic impact of the 2009 stimulus law (PL 111-3), which Republicans view as a failure.
Another concern is that temporarily reducing the tax on foreign earnings could lead more U.S.-based companies to move to other countries in anticipation of future tax holidays, as was found to have occurred after the last repatriation tax holiday was enacted in 2004.
Many Republicans, though, simply view all forms of short-term tax policy as counterproductive.
“We need fundamental and permanent tax reform,” said Ways and Means member
That same sentiment also spells trouble for another initiative being pushed by Cantor. He and other House GOP leaders have proposed a 20 percent tax deduction for businesses with 500 or fewer employees. Unlike a repatriation tax holiday, this proposal has the explicit support of Speaker
Single Message on Taxes Eludes Republicans
Given that the tax deduction seems as if it will be temporary, Republicans like Boustany are reluctant to support it.
Democrats Support Obama
Just as Republicans are struggling to reach consensus, Democrats appear to be finding some degree of unity and are rallying behind a set of tax proposals offered by Obama.
In his speech to Congress on Sept. 8, Obama urged lawmakers to cut the employee share of the Social Security payroll tax in half to 3.1 percent in 2012. He also proposed halving the employer share of the Social Security payroll tax for the first $5 million of a company’s payroll, and eliminating the tax on up to $50 million in additional wages that go to new hires or current workers who receive a pay raise.
An existing payroll tax cut that drops the tax rate for employees from 6.2 percent to 4.2 percent expires at the end of this year.
While they have longstanding concerns about reducing revenue that goes to Social Security, Democrats have “pretty much gotten to a place where there’s general acceptance that that’s going to be a part” of the package, House Minority Leader
Strong Democratic support for Obama’s proposed tax cuts could help their chances of becoming law, particularly if Republicans are unable to mount a unified opposition. Cantor, for one, has expressed openness to at least extending the current payroll tax cut for employees. Following Obama’s speech, Cantor also noted that both Democrats and Republicans now support new tax cuts for small businesses.
David Harrison contributed to this story.