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Revenue vs. Tax Hikes on the Supercommittee



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On the homepage, I report that Democrats and liberals pining for a massive tax increase in the supercommittee’s forthcoming final plan are likely to be disappointed:

In the Senate, meanwhile, 33 Republicans have signed a letter urging the supercommittee not to include “net tax increases” in its final plan. Notable signatories include all three GOP members of the “Gang of Six” — Sens. Tom Coburn (R., Okla.), Mike Crapo (R., Idaho), and Saxby Chambliss (R., Ga.) — who had worked with Democrats to put forward a “grand bargain” deficit proposal of their own, worth about $3.7 trillion. Conservative critics such as Norquist and House Budget Committee chairman Paul Ryan (R., Wis.) denounced the Gang’s plan as a “$2 trillion tax increase.” Democrats and liberals had seen those three senators as potential allies in their push for higher taxes.

A similar letter, which has more than 50 signatures, is currently making its way through the House Republican conference. “Increasing taxes on Americans would destroy jobs, erase all hope of an economic recovery, and simply serve to feed out-of-control spending in Washington,” the letter states. “Thus, as you continue the important task to reach a deficit reduction agreement, we ask that any policies the Joint Select Committee prescribes not increase Americans’ tax burden.”

Interestingly, at least eight members have signed both letters. But that should hardly come as a surprise, as Republicans have repeatedly sought to distinguish between “raising revenue” and “increasing taxes.” The Republicans’ recent proposal for the supercommittee, for example, includes some $640 billion worth of revenue, but none of it comes from higher taxes. That stands in marked contrast to the Democratic plan, which proposes $1.3 trillion in new taxes, the majority of which would come from letting the Bush tax rates on top-income earners expire.

There are plenty of ways that the government can raise revenue — selling assets, raising fees, as well as pro-growth tax reform — without subsequently raising taxes. Even Speaker Boehner has acknowledged that the plan produced by the supercommittee would likely include some new revenue.

Rep. Mike Simpson (R., Idaho), who spearheaded a bipartisan letter to members of the supercommittee, urging them to “go big” and consider “all options,” including revenue, drove home this distinction over the weekend.

“The reality is you can’t get to $4 trillion without including additional revenues,” Simpson said on Fox News Sunday. “We might have different ideas what those revenues would look like. I think you could get additional revenues by actually lowering the tax rates and eliminating all of the exemptions underneath . . . More revenue is key to this.”

But, he hastened to add, “nobody is in favor of raising tax rates, but we are in favor of increasing revenues.”

Steve Moore of the Wall Street Journal has more:

[R]aising rates and raising revenues are different. Eliminating loopholes in exchange for making the Bush tax cuts permanent after 2013 is on the table—and by broadening the tax base, this could bring in tens of billions of new revenues each year. Says Mr. [Jeb] Hensarling [of Texas]: “Republicans want more revenues. We want more revenues by growing the economy; we’re not happy with revenues at 14% of GDP, but we don’t want to do it by raising rates.”

Over at the The Weekly Standard, Fred Barnes lays out a couple of options that the supercommittee is currently considering:

There appear to be two possible outlines of a plan taking shape, one good, one terrible. To attract the GOP Six, the good plan would be built around tax reform, with either income or corporate tax rates (or both) reduced or frozen, while corporate welfare was scraped from the tax code—loopholes, breaks, and special writeoffs, possibly including those Obama has denounced for corporate jet owners and oil companies. Would any Democrats go along? Senators Max Baucus and John Kerry, maybe. And if Senate majority leader Harry Reid blessed the deal, Patty Murray, his surrogate on the panel, probably would. This is Deal A.

Deal B is what might happen should Deal A fall by the wayside. More conventional, it would consist of some formula of tax hikes and spending cuts. Democrats want “balance,” a 50-50 split. Conservatives are worried three Republicans on the supercommittee—House members Dave Camp and Fred Upton and Senator Rob Portman—might accept Deal B as a last resort. Not likely, unless Boehner and McConnell anointed the deal.

Very unlikely indeed. And as Barnes also points out, President Obama, though presumably partial to Deal B, could very well be hoping that no compromise is reached, as it would suit his campaign narrative of a “do-nothing” Congress and allow him to blame the GOP for refusing to raise taxes.

Sen. Chuck Schumer (D., N.Y.), the top messaging strategist for Senate Democrats, is dutifully laying the groundwork for this very outcome, predicting that the supercommittee will fail to reach its $1.2 trillion target because Republicans “are not willing to do any revenues.” (He means tax increases.)

“I don’t think the supercommittee is going to succeed because our Republican colleagues have said ‘no net revenues,’” Schumer said on MSNBC this morning. Of course, he insisted that Democrats are “willing to move to the middle” and compromise on entitlement spending:

The supercommittee has until November 23 to unveil its final plan, which Congress must then vote on — without amendments — before Christmas. However, in order to give the Congressional Budget Office sufficient time to review and score the plan, the panel will likely have to produce something by early next week.

UPDATE: Cato’s Dan Mitchell argues that any deal the supercommittee is likely to come up with would almost certainty be worse than no deal at all. Or in other words, the $1.2 trillion in automatic spending cuts that would result from a failure to reach an agreement is the best possible outcome:

Republicans have complete power to achieve a victory in this battle. All that’s needed is for them to say no to a tax hike. That will lead to a Supercommittee stalemate, which will then lead to automatic budget savings known as sequestration.

Failure to take that option – particularly when the alternative is a tax hike – is breathtakingly misguided.

Especially when the historical evidence is overwhelming that any new tax revenue will be used to make government even bigger…

More here.



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