What business wants: Smaller deficits and lower tax rates, of course

January 10, 2013

The deficit hawks may have lost the fiscal cliff debate, but the cry for more deficit reduction hasn't died down.

U.S. Chamber of Commerce President Tom Donohue drove home the point in a speech Thursday morning in which he unveiled the Chamber's 2013 agenda. "The single biggest threat to our economic future ... is our exploding national debt, driven by runaway deficit spending, changing demographics and unsustainable entitlements," he said. Yet it's unclear whether the chamber would be willing to raise taxes on businesses any further to help solve the problem.

Thomas Donohue, president of the U.S. Chamber of Commerce, speaks at the organization's headquarters in Washington. (Bloomberg)
Thomas Donohue, president of the U.S. Chamber of Commerce, speaks at the organization's headquarters in Washington. (Bloomberg)

The chamber has long stressed that the deficit is principally a problem of spending and entitlements — essentially, the same argument that the GOP is pushing. What's less clear is whether the chamber would be open to more tax revenue to do the job.

Earlier in the fiscal cliff debate, the trade organization — like other business groups — said that it would be open to a deal that raised tax revenue by closing tax loopholes, for instance, as long as looser regulations and entitlement cuts were part of the deal.  But the chamber was unhappy with the small-ball deal that passed, arguing that it "hit successful small businesses hard" without addressing the long-term deficit.

The chamber has revived its call for "comprehensive tax reform" of both the corporate and individual code that "broadens the base, lowers rates and simplifies compliance" — one piece of the grand bargain that got left behind in the final weeks of fiscal cliff negotiations. Like most business groups, the chamber argues that such reform "will turbo-charge our growth, create jobs and generate more revenues for government at all levels," as Donohue said in his speech Thursday.

What's less clear is whether the chamber would be willing to raise the overall tax burden on corporations to combat the problem of "exploding national debt," or whether it will join other business groups in calling for "revenue-neutral" reform that would do nothing for deficit reduction upfront. The Obama administration had previously promised to attach revenue-neutral corporate tax reform to a big deficit deal — a major concession to Republicans. But the White House's big challenge in the next round of budget negotiations will be finding the revenue increases that it deemed mandatory in any budget deal. And it could potentially target tax breaks — some of which have raised a lot of popular anger — to pay down the deficit rather than lower rates as the chamber is hoping for. 

On the one hand, the chamber has previously gone so far as to support "industry-specific neutrality and avoid special tax benefits or penalties targeted to one industry versus another," suggesting its willingness to give up on certain tax breaks. On the other, it's also fired a warning shot of sorts against leaning too heavily on tax changes for another deficit deal. "Make no mistake. While there are solid economic and competitive reasons to pursue it, tax reform cannot be seen as a substitute for spending restraint," Donohue said. And higher taxes on corporations — or on small businesses through tax hikes in the individual tax code — could raise the chamber's hackles, especially if they're not attached to a bigger tax overhaul that lower rates as well.

Certainly, there will be no shortage of industry lobbyists who will be set on defending any and all tax loopholes from being put on the chopping block in the next round of budget negotiations as potential sources of new tax revenue. But as Nick Confessore and Tim Carney have reported today, some of those insisting on shielding businesses from tax hikes are the same ones calling for a balanced, bipartisan approach to deficit reduction.

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Dylan Matthews · January 10, 2013