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Wonkbook: Is the GOP ready to put taxes on the table?

By Ezra Klein,

Win McNamee GETTY IMAGES Politico's Richard Cohen has an interesting report this morning suggesting that House Republicans have turned on tax breaks, and perhaps even towards revenues, in a big way. The most surprising quote in the story is from Majority Leader Eric Cantor, who told reporters “We are not opposed to revenues. We are just opposed to tax increases." Coming on the heels of the consequential votes Senate Republicans cast against ethanol subsidies -- and for more revenues -- that's an important statement. If Republicans have successfully redefined tax increases as "new revenues that come from higher marginal rates" but not "new revenues that come from cutting tax breaks and closing loopholes," that opens up a lot of space for compromise.

But I'm skeptical. Not of the fact that Republicans are increasingly interested in ridding the code of some special-interest tax breaks, but of the fact that Republicans -- or, for that matter, Democrats -- are ready to raise serious amounts of revenue by going after the big tax breaks. According to the Tax Policy Center, the largest tax expenditures, in order, are the breaks for employer-provided health care, pension contributions, mortgage interest, depreciation of capital equipment, state and local tax payments, and charitable contributions. We're not talking ethanol credits here, and we're not even talking about tax breaks for special interests. We're talking about tax preferences for the middle class.

So far, the discussion over raising revenues by cleaning out the code has used comfortably vague language about "tax breaks" and "loopholes" and "expenditures." But to see serious money from this effort, these are the sorts of breaks, loopholes and expenditures we'll have to go after. At this point, Republicans are pawing at some green energy subsides they don't like and Democrats have mostly been talking about some fossil-fuel subsidies they don't like. It's good policy to get rid of subsidies for ethanol and oil and gas manufacturers, but it's not going to do much for the deficit. As of yet, no one is really been talking about the elephants in the code, and until we're talking about those elephants, we're not really talking about new revenues.

Five in the morning

1) Debt limit negotiators are picking up the pace, reports Lori Montgomery: "The White House and congressional leaders are accelerating negotiations over the biggest debt-reduction package in at least two decades amid mounting concern that the effort is running out of time. Over the next six weeks, negotiators must strike a bipartisan compromise to slice more than $2 trillion from the federal budget by 2021, reduce the complex plan to writing and persuade a bitterly divided Congress to support it. But one or both chambers is due to be on break for three of those weeks. And when Congress last reached a big debt-reduction deal, it took more than a month just to draft the legislation. That leaves little room for chance -- or last-minute negotiating to marshal votes for what is likely to be a politically difficult package of unprecedented cuts to long-
sacrosanct federal programs."

2) Senate Republicans are trying to keep revenues out of a debt limit deal, report David Rogers and Manu Raju: "As White House budget talks enter a crucial week, top Senate Republicans are redoubling their efforts to keep revenues out of the mix...Minority Whip Jon Kyl (R-Ariz.), the chief Senate Republican negotiator, delivered an anti-tax blast on the Senate floor Monday -- just a day after Minority Leader Mitch McConnell (R-Ky.) spoke of settling for a less comprehensive, tax-free deficit-reduction package and kicking the debt ceiling fight over into the fall. Two themes stand out: A skepticism toward the progress being made in the House-Senate talks being led by Vice President Joe Biden, and a push back against those who saw last week’s 73-27 ethanol vote as a sign that Republicans might yet allow some tax revenues to be part of the deficit reduction package."

3) House Republicans, by contrast, are opening up to tax changes, reports Richard Cohen: "Last week’s resounding votes on ethanol subsidies were just the start. Republicans are now starting to eye all sorts of tax breaks and special-interest loopholes once considered sacred cows as they seek ways to increase government revenue without actually raising tax rates. The targeting of long-protected tax breaks -- for ethanol, research and development, manufacturing and foreign company income -- is a sign that key House Republicans are ready to break with the orthodoxy of past tax debates while ditching special interests that have long held sway in tax reform discussions. In going after some of these tax credits, Republicans on the House Ways and Means Committee are proposing a trade-off by lowering corporate and individual tax breaks."

4) The White House didn't rule out a short-term debt limit hike, reports Carol Lee: "The White House is leaving open the possibility of a short-term debt ceiling vote this summer...Responding to comments from Senate Minority Leader Mitch McConnell, who on Sunday floated the idea that Congress might only raise the debt ceiling for 'a few months' and revisit the issue in the fall, White House press secretary Jay Carney didn’t rule it out. 'I am not going to, today, make a judgment about different ideas that are being floated about when and how and for how much and how long the debt ceiling should be raised because our focus right now is on the things that we are doing at the staff level today and beginning tomorrow with the vice president leading the next meeting of negotiators,' Mr. Carney told reporters Monday."

My take: This is not a good idea.

5) Europe is split on how to deal with debt crises, reports Howard Schneider: "Europe is facing an increasingly divisive choice in the effort to resolve its economic crisis: a larger transfer of wealth from stronger nations such as Germany to weaker ones such as Greece, or a default by one or more nations that, if not managed properly, could touch off a wave of bank and corporate failures. Those stark options -- requiring either deep political changes in European governance or a financially risky national debt restructuring in the heart of the developed world -- are considered by a wide array of officials and analysts as the likely endgame in the protracted debate over the future of the 17-nation region that shares the euro as a currency. Three of those countries are receiving rescue loans from the International Monetary Fund."

Live interlude: DOM plays "Living in America".

Got tips, additions, or comments? E-mail me.

Still to come: A deal on trade agreements look near; the most important moment for financial reform since the financial crisis itself; the administration and Congress are battling over conflicting health care forecasts; Dahlia Lithwick on the Supreme Court's Wal-Mart ruling; a labor dispute at Boeing has Obama in a tough spot; the Supreme Court ruled for utility companies in a global warming lawsuit; and a lion takes a nap on a human.


The White House and Republicans look near a deal on trade, reports Tom Barkley: "Democrats and Republicans have 'substantially' narrowed differences over restoring benefits for trade-related job losses, as both sides work toward beginning informal debate on free-trade agreements, U.S. Trade Representative Ron Kirk said Monday. Mr. Kirk said in an interview that the administration would still prefer to complete talks on the job retraining program before preliminary work begins on trade deals with South Korea, Colombia and Panama. But he said growing momentum toward a deal to restore funding for the Trade-Adjustment Assistance program means the administration 'is in a good place' to work with Congress on draft legislation that provides Congress with an opportunity for input before the trade deals are formally submitted for an up-or-down vote."

Housing prices look like they're staying put for a while, reports David Reilly: "Federal Reserve Chairman Ben Bernanke may be right that recent rises in food and energy prices are transitory. If only the same were true of weakness in the housing market. Instead, its decline has proven remarkably persistent. That is likely to be underscored by Tuesday's release of existing-home-sales data from the National Association of Realtors. Economists expect this measure, which tracks completed home sales, to fall in May to a seasonally adjusted annual rate of 4.8 million sales. That would be down from May's 5.05 million and represent about a 15% year-on-year fall. To be sure, existing-home sales appear to be starting to stabilize around the five-million mark. If so, that may be a precursor to slowing home-price declines. Still, it will take some time for that to happen."

The House is moving ahead with patent reform, reports David Rogers: "House Republicans were hopeful Monday night that they had put their jurisdictional fights behind them and could move ahead with a landmark patent reform bill this week. Under the compromise, funding for the Patent and Trademark Office would still be subject to the annual appropriations process, but greater care would be taken to ensure that the fees collected are used for their designated purpose and not diverted to other accounts. If fees are higher than the budget anticipates, the excess would be deposited in a newly established reserve fund in the Treasury. The Appropriations Committees would oversee this money as well under its customary reprogramming procedures, but the bill spells out that these patent fee receipts must go exclusively to the processing of patent applications and related costs."

This is the most important moment for reform since the financial crisis, writes Joe Nocera: "Capital matters. Let me put that another way. The current fight over additional capital requirements for the banking industry, eye-glazing though it is, also happens to be the most important reform moment since the financial crisis broke out three years ago. More important than the wrangling over Dodd-Frank. More important than the ongoing effort to regulate derivatives. More important even than the jousting over the new Consumer Financial Protection Bureau. If investment banks like Merrill Lynch had had adequate capital requirements, they would not have been able to pile on so much disastrous debt. If A.I.G. had been required to put up enough capital against its credit default swaps, it’s quite likely that the government would not have had to take over the company."

My column: Whatever happened to grand bargains? The Democrats, if you challenge them on this, don’t necessarily disagree. But what’s the alternative, they ask, let the debt ceiling cave in and the economy go into a tailspin? The Republicans might be willing to take that risk, but they’re not. They control the White House and the Senate. They have to be responsible. Be the grown-ups. Govern. That’s true. But it’s created a fundamental imbalance in American politics: There’s never a good enough reason for the Democrats to say no, or for the Republicans to say yes. And letting that dynamic persist is not responsible either. Eventually, this White House has to figure out how to make Republicans say yes.

The idea of "job-killing spending" makes no sense, writes Alan Blinder: "How can the government destroy jobs by either hiring people directly or buying things from private companies? For example, how is it that public purchases of computers destroy jobs but private purchases of computers create them? One possible answer is that the taxes necessary to pay for the government spending destroy more jobs than the spending creates. That's a logical possibility, although it would require extremely inept choices of how to spend the money and how to raise the revenue. But tax-financed spending is not what's at issue today. The current debate is about deficit spending: raising spending without raising taxes. For example, the large fiscal stimulus enacted in 2009 was not 'paid for.' Yet it has been claimed that it created essentially no jobs. Really?"

Adorable animals playing with humans interlude: A lion sleeps on top of a person.

Health Care

The health care debate is overrun with conflicting forecasts, reports Milt Freudenheim: "The debate over the effects of the federal health care law on employer-provided insurance has been intensifying in recent weeks, with controversial polls and consultants contradicting one another about whether employees will benefit or lose coverage by 2014. After nearly two weeks of widespread queries and criticisms, McKinsey & Company...posted on Monday the questionnaire and methodology of an online survey it had released that was denounced by the White House and others for contending that nearly a third of employers would definitely or probably drop coverage for employees when provisions of the health care law took effect in 2014...Over all, including all employers, analyses by a number of widely cited researchers predicted little or no change in employer-sponsored insurance in 2014."

"Doc fixes" are driving up Medicare spending, reports Lester Feder: "The Medicare physician payment formula is often attacked as a budget gimmick that holds down federal spending on paper, even though everyone knows the cuts it imposes will never come into effect. Weaning lawmakers off the device, however, is challenging not only because putting an end to it gets more expensive with every passing year but because it has failed at achieving the goal it was actually designed for: slowing cost growth. A permanent fix to the problem, experts say, requires not just being honest about what it will cost to pay doctors but also crafting a new payment structure that will succeed where the current formula failed...Congress started creating 'cliffs' -- adding tens of billions in spending for short-term extensions but assuming the cuts would go into effect afterward. That tactic kept the cost of a full repeal off the books."

Picking a fight with your health insurer may be worth it, reports Michelle Andrews: "Nobody wants to get into a fight with a health insurer, but it may be worth your while. A recent Government Accountability Office report found that more claims problems stemmed from annoying but often straightforward billing and eligibility issues than from disagreements over whether care was medically appropriate. What's more, the odds are about 50/50 that if you appeal an insurer's decision, you'll win...Under the 2010 health law, the situation should improve. Health plans will be required to inform members that they can appeal disputed claims internally within the health plan as well as to an independent review organization not affiliated with the health plan. The new rules become effective in July."

Domestic Policy

A labor dispute at Boeing has put Obama between a rock and a hard place, report Michael Fletcher and Jia Lynn Yang: "With the federal government’s labor board stepping into a bitter fight between aerospace giant Boeing and its main union, President Obama faces a political quandary because of his administration’s close ties to both sides. Obama’s chief of staff, William Daley, and his nominee for Commerce secretary, John Bryson, until months ago both served on Boeing’s board. Obama also tapped Boeing’s chief executive, Jim McNerney, to head the President’s Export Council, designed to help achieve the administration’s goal of doubling exports by 2015. Meanwhile, Obama rode into office with broad support from labor...He has reshaped the National Labor Relations Board, which enforces labor laws and has moved to a more pro-union stance after years of siding with employers."

The Supreme Court blocked a large sex discrimination suit against Wal-Mart, reports Robert Barnes: "The Supreme Court on Monday blocked the nation’s largest-ever sex discrimination case, ruling in favor of Wal-Mart in a decision that raises significant hurdles for other class-action suits brought against big corporations. As many as 1.5 million current and former female workers could have been included in the class suing Wal-Mart, the world’s largest private employer, and the company faced the possibility of owing billions of dollars in back pay. But the court’s conservatives said the women had not proved they had suffered from a common policy of discrimination...The case was the most important of the term for corporate interests, some of which face the same kind of class-action suits filed by female employees."

The Court's reasoning on this is absurd, writes Dahlia Lithwick: Writing for the court's five conservatives—and all but one of its men—Justice Antonin Scalia found that the women seeking to be certified as a single class did not have enough in common to go forward with the lawsuit en masse. Wal-Mart, the nation's largest private employer, seems to have figured out that the key to low-cost discrimination lies in discriminating on a massive scale. In Scalia's words, all these disparate women with their multiple claims about 'millions of employment decisions' lacked sufficient 'glue' to be permitted to move forward together. A lot of critics are saying that this decision has created a new rule: Some companies are simply too big to sue. But that's only half the story. The other half is that in the court's eyes, sex discrimination is simply too pervasive to be a problem.

A new rule would require truth in union-busting, reports Melanie Trottman: "The Obama administration Monday said employers should disclose more information about the consultants they hire to respond to union bargaining or organizing campaigns...The Labor Department's proposal hinges on the interpretation of 'advice' stemming from the 1959 Labor-Management Reporting and Disclosure Act. Currently, employers must report arrangements with third-party consultants hired to influence employees in connection with union bargaining or organizing issues. The rules governing such reporting have an exception that allows employers and consultants not to file reports when consultants are giving 'advice' to the employer. In effect, that means only consultants who communicated directly with workers have to file reports with the Labor Department."

Accidentally successful green card applicants are filing suit, reports Miriam Jordan: "A lawsuit has been filed against the State Department in federal court seeking to reinstate thousands of potential green-card winners whose chance of obtaining U.S. residency was scuttled because of a government computer error. A record 15 million people from around the world submitted entries to the so-called diversity visa program lottery, which each year offers a quick path to a green card for 50,000 people selected by random draw. In early May, the State Department notified 22,000 people they were chosen. But soon after, it informed them the electronic draw would have to be held again because a computer glitch caused 90% of the winners to be selected from the first two days of applications instead of the entire 30-day registration period. The government told affected individuals they would be re-entered in a new draw."

Recent service cuts are indefensible, writes Stephanie Mencimer: "Republicans, along with Obama, too, have taken a whack at the one remaining program that resembles the old CCC: the Corporation for National and Community Service. The corporation is the nation’s largest public service organization, whose best-known program is AmeriCorps (basically a domestic version of the Peace Corps). It provides jobs to about 100,000 people, many of whom are recent college graduates facing one of the worst job markets of any recent generation...The final deal brokered to avert a government shutdown over the fiscal year 2011 budget cut CNCS’s funding by about 6 percent, or about $75 million, resulting in the loss of 6,000 AmeriCorps positions...The first wave of cuts is already starting to have an impact, as dozens of nonprofit programs that relied on AmeriCorps and CNCS volunteers are closing their doors."

Celebrity endorsement interlude: Tom Hanks endorses The Onion's campaign for a Pulitzer.


The Supreme Court ruled for utility companies in a global warming case, reports Robert Barnes: "The Supreme Court on Monday unanimously shut down a huge global-warming lawsuit in which states asked the federal courts to regulate polluting power plants. The justices said that is a job for the Environmental Protection Agency. Writing for her colleagues, Justice Ruth Bader Ginsburg said Congress in the Clean Air Act gave responsibility for curbing carbon dioxide emissions to the EPA. The Obama administration had asked the court to stop the suit first filed by eight states, the city of New York and several environmental groups and said the agency would issue regulations for the aging power plants by May 2012. Ginsburg said the states and groups may challenge the EPA’s actions, but a national policy was better than limits set by individual federal judges."

EPA cuts are hitting states hard, reports Juliet Eilperin: "When congressional Republicans cut the Environmental Protection Agency’s budget 16 percent as part of a deal with President Obama in April to keep the government running, they hailed it as a blow to a federal bureaucracy that had overreached in its size and ambition. But now that the agency has detailed how it is making the $1.6 billion cut for fiscal 2011, the reality is somewhat different. Because the EPA passes the vast majority of its money through to the states, it has meant that these governments -- not Washington -- are taking the biggest hits. Already constrained financially at home, state officials have millions of dollars less to enforce the nation’s air- and water-quality laws, fund critical capital improvements and help communities comply with new, more stringent pollution controls imposed by the federal government."

The FTC is investigating gas price fixing, reports Steven Mufson: "The Federal Trade Commission has told members of Congress that it has started an investigation of the oil and gas industry for anti-competitive conduct and potential price manipulation. After several months of sharp swings in oil prices, the FTC will investigate gasoline markets. While collusion or price fixing are matters for the Justice Department, the FTC can impose civil penalties on companies that manipulate the prices of petroleum products. 'I am not convinced that these price increases were necessary or reflected true market conditions,' Sen. Jay Rockefeller (D-W.Va.) said in a statement. 'And the high profits in the oil industry only increase my concerns that West Virginians are paying more at the pump while the big companies are getting richer.'"

Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.

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