The Bush tax cuts are tripping up the supercommittee
On Wednesday night, Michael Steel, John Boehner’s spokesman, e-mailed reporters to quash talk that the supercommittee’s Democrats had presented Republicans with another counteroffer and that the ball was now in the GOP’s court.
“This particular conversation was a step backwards,” Steel wrote. “It would lock in the largest tax hike in history – at least $800 billion - and then add an additional $400 billion in job-killing tax hikes without pro-growth tax reform, plus more than $300 billion in ‘stimulus’ spending.”
Democrats were agog. There’s no $800 billion tax increase in their proposal, they said. Their plan calls for $400 billion in new revenues -- close to the levels Republicans had pitched earlier. When I circled back to Steel, he explained his note more clearly. “They now plan to extend the current tax rates?” He replied. “That’s big news!”
To understand what Steel is saying, you need to understand that Republicans are trying to use the supercommittee as a vehicle to extend the Bush tax cuts, and how that’s making it much harder for the supercommittee to reach a deal.
Originally, Republicans said no new revenue at all. Zero, zip, zilch. Democrats wanted $1.3 trillion in new revenue.
Then, in the proposal by Sen. Patrick J. Toomey, they agreed to $300 billion in revenue -- but only if the Democrats agreed to extend $3.8 trillion worth of the Bush tax cuts. In their counteroffer, the Democrats proposed $400 billion in revenue, leaving the Bush tax cuts for another day. That’s the offer Steel says would “lock in” an $800 billion tax hike. (See Suzy Khimm’s Wonk Blog summary of all the offers here.)
So where is Steel getting ”the largest tax hike in history — at least $800 billion”?
The Democrats’ position is that the Bush tax cuts for income over $250,000, which are worth about $800 billion, should be allowed to expire in 2012. All the rest should be extended. The Congressional Budget Office will score this as a $3 trillion tax cut, as it means making the rest of the Bush tax cuts permanent. But Republicans consider it an $800 billion tax increase, as it’s $800 billion more in taxes than Americans are paying right now.
Nevertheless, what Steel is saying is simply false: Nothing in the Democrats’ proposal “locks in” any particular resolution to the Bush tax cuts. It simply leaves that question for another day. An annoyed Democratic aide points out that by the Republicans’ logic, anything that doesn’t extend the Bush tax cuts right now — the trigger, a nuclear bomb being dropped on Washington, a zombie attack that sends Congress into recess, anything — would count as an $800 billion tax increase.
But to be more generous to Steel, the underlying reality of the situation suggests that Democrats will win that fight -- if they want to. If Congress does nothing, the Bush tax cuts expire. All of them. Whatever you think of the economic merits of letting the Bush tax cuts expire for everybody, it would make voters very angry. And if the reason the cuts expired was that Republicans refused to extend $3 trillion in cuts for the middle class without extending $800 billion in cuts for the rich, voters will be very angry at Republicans. So the Democrats are in the driver’s seat here.
Which brings us back to the supercommittee. Republicans are trying to use it to resolve the Bush tax cuts now so they’re not left defending tax cuts for the rich later. That’s what happened in this exchange: The Democrats made a counteroffer to Toomey that involved pretty much matching his numbers but deleting his extension of the Bush tax cuts. Republicans rejected that offer, and House Speaker Boehner’s spokesman e-mailed reporters to call it “a step backwards because it would lock in the largest tax hike in history.”
If all Republicans cared about was reducing the deficit, it wouldn’t make much sense to use a deficit-reduction task force to add $3.7 trillion in tax cuts to the deficit. But neither party cares solely about the deficit. Republicans, for instance, care about tax rates and politics. So it makes perfect sense for them to try to sneak the tax cuts into a deal that will be framed as a deficit-reducing compromise between the two parties. But ultimately, that’s making a deal harder to come by, as Democrats would prefer to leave the resolution of the Bush tax cuts till later.