CQ TODAY ONLINE NEWS
Nov. 4, 2011 – 9:58 p.m.
Bridging the Revenue Gap Still Proves Difficult for Deficit Committee
By Sam Goldfarb, CQ Staff
Months after President Obama and House Speaker
Lawmakers from both parties agree on one point: The tax code should be rewritten by lowering tax rates and restructuring tax breaks for individuals and corporations.
Similar to Boehner, R-Ohio, and Obama when they were trying to reach a deal to raise the debt ceiling, the panel has discussed parameters for a tax overhaul — most, if not all, of which would be written by the House Ways and Means and Senate Finance committees by a set deadline next year.
“In order to get the sort of large-scale deal that so many folks are calling for, tax reform has got to be a big component,” a Democratic aide close to the committee said Nov. 4, echoing a point that often has been made by Republicans.
But the Joint Select Committee on Deficit Reduction still is deeply divided over how much revenue a tax overhaul should raise. Democrats are pushing for a net tax increase of $1.3 trillion over 10 years, while Republicans have opposed any measure that could be construed as raising taxes.
Republicans, in fact, appear to have staked out a much more hardened position than Boehner did in his talks with Obama. As long as an overhaul involved lower tax rates for individuals and corporations, Boehner had been willing to raise up to $800 billion over 10 years (compared with an extension of current tax policy) arguing that the resulting tax code would be more efficient and conducive to economic growth.
Negotiations Stalled
The joint committee’s deliberations have been close to a standstill over the past week, with Democrats insisting that Republicans cede ground on taxes before serious negotiations continue.
With voters and credit rating agencies watching closely, the panel may have only another week or so to resolve its differences, creating tension on all sides. Under the debt limit law (PL 112-25) that created it, the committee must produce by Nov. 23 legislation that reduces the deficit by at least $1.2 trillion over a decade.
Asked last week if the approaching deadline made him nervous, Rep.
“I haven’t changed my position from day one,” he said. “I’ve approached this process with high hopes and tempered expectations. I continue to have high hopes and tempered expectations.”
As the week drew to a close, no full committee meetings were scheduled for the weekend and Boehner had left town for a week of fundraising.
Throughout the joint panel’s existence, observers and negotiators have both factors that could drive the panel toward a compromise and reasons that an agreement could prove elusive.
Bridging the Revenue Gap Still Proves Difficult for Deficit Committee
At a moment when the world’s financial markets are on edge, lawmakers are certainly concerned about another credit rating downgrade. They are also eager to avoid across-the-board spending cuts that would automatically go into effect in 2013 if the joint committee is unable to fulfill its mandate.
At the same time, the delay in those spending cuts relieves some pressure on negotiators. There is also a widespread sense that the “real” budget fight might actually occur at the end of next year, when the George W. Bush-era tax cuts (PL 107-16, PL 108-22) are scheduled to expire, putting trillions of dollars at stake. And it could be difficult for lawmakers to overcome partisan differences as they try to promote those contrasts ahead of the 2012 elections.
Contours of a Compromise
Ever since Obama and Boehner tried to reach a “grand bargain” in July, the ingredients of a bipartisan deficit reduction package have been almost hidden in plain sight.
Republicans, it seems, will almost certainly have to give ground on revenues, and, in exchange, Democrats will probably need to accept deeper cuts to Medicare and Medicaid than they would like.
Meeting with reporters Nov. 3, Boehner came close to making that case.
“There is room for revenues” in a deal, he said, although he added that there is a limit to how much could be raised without causing significant harm to the economy.
The speaker also said that “without real reform on the entitlement side, I am not going to put any revenue on the table.”
Boehner, however, did not specify what would constitute “real reform on the entitlement side,” raising the prospect that his demands could be too steep for Democrats even if Republicans were willing to accept some more revenue.
Diverging views on exactly where to draw the line on taxes and entitlements is exactly what appeared to sink the discussions between Boehner and Obama.
Other details will also need to be worked out in the event that the joint committee talks move forward. Besides a revenue target, negotiators have to determine how to distribute the tax burden across income levels.
Outside of the joint committee, Democrats have been arguing strenuously for raising taxes on bigger earners, while Republicans are keen to maintain the tax code’s current progressivity.
In other bipartisan budget talks, negotiators have tried to get around this difference by stating that a future tax overhaul should be “at least as progressive” as the current tax system.
Bridging the Revenue Gap Still Proves Difficult for Deficit Committee
Besides setting a tax code overhaul in motion, Democrats on the joint committee also want some revenue increases to be included up front along with a broader package of spending cuts.
But it remains unclear how exactly they would accomplish that goal. If anything, Republicans are even less willing to discuss raising tax revenue in context of a “down payment” than they are when focused on a more sweeping tax overhaul.