The debt-ceiling deal is only hours old, and the White House and Republicans are already fighting over what the fine print means for tax policy.
The White House insists that tax revenues remain very much in play. Not only will Obama use his bully pulpit to try and pressure the newly formed bipartisan committee to include a tax increase – but he is now pledging to veto any effort at the end of 2012 - following his reelection, or defeat — to renew the George W. Bush tax cuts.
Aides said Monday this guarantees revenues will be part of the final formula, either through a special congressional committee being formed as part of the final debt deal or the veto pen.
White House press secretary Jay Carney told reporters Monday that there is a “great incentive” for the super committee to tackle taxes.
If the committee process “fails,” he said, “you can be sure that the president will honor his promise to veto any legislation that would extend the Bush high income tax cuts beyond 2012, which would create almost a trillion dollars in revenue raisers.”
GOP officials and their allies, however, say the tax fight is over, and the White House’s hopes of snagging a tax increase to help with deficit reduction was “shut down,” as House Speaker John A. Boehner (R-Ohio) put it last night.
Republicans argue that the special committee will be all but blocked from addressing tax increases. The panel’s even bipartisan split means that at least one Republican member would have to support higher taxes, which is highly unlikely.
Moreover, the GOP says, the deal makes it almost impossible for the committee to consider any changes to the Bush tax cuts. Republicans say deficit savings to be considered by the special panel would likely be calculated against current law – meaning that the baseline assumes the Bush tax cuts expire on schedule.
That means extending the middle-class tax cuts, as the White House would support, could add to the deficit in the committee’s calculations. Since the committee’s charge is deficit reduction, Republicans say the Bush cuts would be off the table for discussion – leaving that issue to a separate congressional debate.
Before the House vote on Monday, Gene Sperling, director of the National Economic Council, weighed in with a White House blog post.
Sperling called the House claims “a misrepresentation of what is called “the baseline.”
“The ‘baseline’ is what deficit reduction is measured against,” he explains. “Reports have suggested that the Committee would have to use a ‘current law’ baseline—a baseline that assumes that all of the 2001 and 2003 tax cuts expire along with relief from the alternative minimum tax.”
“That would mean that any tax reform effort that raised less revenue than allowing all those tax cuts to expire would be scored as increasing the deficit. Even conservative Republican proposals for “revenue neutral” tax reform would be scored under this approach as increasing the deficit by more than $3 trillion.”
It’s a confusing muddle, to be sure — and one that the White House sees very differently. Obama aides, after all, note that the debt deal gives the special committee total freedom to decide how its deficit savings are calculated. So, the White House argues, the committee could propose a tax-code overhaul that would lower rates but close special breaks and loopholes — rendering the Bush tax cuts moot — and they would be calculated as a net deficit reduction.
Either way, Democrats may well have to decide if they want to spend 2012 defending a major tax increase as their election-year platform. The party was so spooked by the prospect of raising taxesin 2010 that the president signed off on one extension of the Bush tax cuts – and many in both parties doubt Democrats would suddenly decide to do it again.
“The Bush tax cuts are settled policy. I’m sorry liberals don’t like to hear that,” said Grover Norquist, president of the conservative Americans for Tax Reform and author of the no-new-taxes pledge that now defines GOP doctrine on the issue.
It is a fight that the bases of both parties welcome. Liberal Democrats see tax increases – and the expiration of the Bush tax cuts – as fundamental to their view that government should be robust and well-funded. The Republican Party, meanwhile, appears more unified than ever that no new taxes will be tolerated.