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The next ‘fiscal cliff’ fight has officially begun

In the next stage of the "fiscal cliff" fight — news outlets are already calling it the "debt ceiling fight," though the White House would probably prefer to think of it as a sequester fight — the debate will essentially boil down to two questions: What kind of entitlement and spending cuts will Republicans be demanding? And will Democrats manage to get revenue on the table? On the Sunday morning shows, leaders from both parties laid down their opening positions.

Getty Images Senate Minority Leader Mitch McConnell (Source: Getty Images)

The challenge for the Democrats will be to make the case that changes to the tax code shouldn't stop with the George W. Bush tax cuts, which they've so monolithically focused on in the lead-up to Dec. 31. On Sunday, CNN's Candy Crowley challenged Sen. Dick Durbin (D-Ill.) to answer whether he thought "that taxes have been raised enough on the wealthy." Durbin's response was revealing: Rather than focus directly on the tax treatment of the wealthiest, he framed the need for more tax revenue in terms of broader "tax reform" to get rid of loopholes and deductions, eluding to the need to eliminate tax breaks for the "1 percent":

I can tell you that there are still deductions, credits, special treatments under the tax code which ought to be looked at very carefully. We forgo about $1.2 trillion a year in the tax code, money that otherwise would go to the government, and when you look closely, some of those things are near and dear to us individually and to the economy -- the mortgage interest deduction, charitable deductions, deductions for state and local taxes, but beyond that, trust me, there are plenty of things within that tax code, these loopholes where people can park their money in some island offshore and not pay taxes, these are things that need to be closed. We can do that and use the money to reduce the deficit.

Durbin, in essence, outlined the Democratic strategy for the next round of the "fiscal cliff" debate: Find revenue to offset the sequester by promising to get rid of "loopholes" in the tax code, framed as common-sense tax reform. (Tax policy experts Len Burman and Joel Slemrod have some ideas about where to start.) 

The recent outcry over the corporate tax giveaways in the recent "fiscal cliff" deal could help them make the case for finding more revenue, as Durbin suggested (though the White House's promise for revenue-neutral corporate reform could complicate matters). "Max Baucus has been the first to say we need to sit down and look at these," he said. "And who knows who represents the algae lobby on Capitol Hill, but they must have been very happy with the outcome."

However, Republicans have made their opening position as clear as well: They believe the debate over tax revenue has been closed altogether. "The tax issue is behind us. Now, the question is what are we going to do about the real problem. … Now it’s time to pivot and turn to the real issue, which is our spending addiction," Senate Minority Leader Mitch McConnell told ABC News’s George Stephanopoulos.



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Ezra Klein · January 6, 2013

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