Wonkblog is running an ongoing series of interviews with key lawmakers and stakeholders on austerity crisis. On Monday, I spoke with Rep. Sander Levin (Mich.), ranking Democrat on the House Ways and Means Committee, which has jurisdiction over tax issues. Our conversation is below, lightly edited for length and clarity.
Suzy Khimm: Where would you say the negotiations are right now?
Sander Levin: At the beginning. I think there's been some preliminary work, and the most important part of it has been the impact of the election and a greater willingness — at least spoken willingness — to work together. In that sense, the atmosphere has improved but the hard steps have yet to be taken.
Republicans say they're willing to increase tax revenue without increasing rates, which has sparked a lot of discussion as to whether that's possible. Do you think it is?
We've looked at every suggestion, and the conclusion is clear: In order to address our needs, revenues have to include rate increases. That means that the tax break for the wealthiest needs to end at the end of this year. We've looked at every suggestion that's come forth, and none of them meet the test of equity and adequacy of revenues.
Some have also suggested that a compromise could be struck in other ways — by raising the top rate to less than 39.6 percent (the top Clinton-era tax rate), or by raising the qualifying threshold from $250,000 for the Bush tax cuts. Would you be open to considering these kinds of changes?
I think the first point that everybody needs to acknowledge is that the president made it very clear during the campaign that his position is to end the tax break for the very wealthy. The CBO report that came out really reinforces this: In terms of the potential impact on GDP and the danger posed by the cliff, extending the middle-income tax cuts is by far the most important part in terms of economic growth. When they looked at the upper-income tax cuts, in terms of potential impact of the cliff on economic growth, the conclusion of CBO was that it's the least significant factor in terms of economic growth. I think that sets the framework. There needs to be an agreement to act within that framework.
In terms of proposal to change and to move up [the threshold] from $250,000, everybody needs to be looking at the impact in terms of revenues. It would be somewhat substantial, as you know. Also there's the issue of equity. What happened under the Clinton-era top income rate? As they prevailed, we had very substantial economic growth. We need to face the reality — in terms of adequate revenues but also in terms of fairness. The upper 1 percent — they've received the vast majority of increases in income over the last 10 years. In 2010, they received well over three-fourths of it. So I think the next step is to face the reality of adequate revenues, fairness and economic growth — these three factors.
What do you think would be a good target in terms of tax revenue? Is there a minimum level that you think would be adequate, as well as one that would be ideal?
You have to separate what needs to be done to avoid the fiscal cliff and what needs to be done longer range. It's a mistake to essentially collapse those two — they're not the same. I don't think you can achieve everything at once.
What really needs to be done is to avoid the cliff: Extend middle-income tax cuts — if you don't, it has a major downward spiral on economic growth — and to not extend the high income tax cut; to put another patch on AMT for one year; to handle physician reimbursement, the doc fix; and unemployment insurance.
Because unlike previous times when there was a cliff for unemployment insurance, it really wasn't a cliff. The federal program phased out. You have here a human cliff in terms of [unemployment insurance]: On Day 1, 2 million-plus people would lose it entirely. The reason the middle-class tax cuts need to be dealt with now is because of its effect on taxpayers and for growth. I say do the short-range now, do it right, do it well, and set the stage to tackle longer-term solutions.
So do you think that it's a mistake to tie long-term issues like comprehensive tax reform to a fiscal cliff deal? Republicans want to do that, and there's some talk of attaching another trigger or other enforcement mechanism to a fiscal cliff deal to make sure it actually happens.
I think the difficulty is how you set the triggers. We've tried that before. I think the best way to proceed is to come to agreement sooner rather than later on avoiding the cliff, extending middle-income not high-income tax cuts, and essentially to have the kind of an atmosphere and agreement that we need to tackle corporate and individual tax issues. Also, we'll look at entitlements.
But to try to accomplish all of that in three weeks — I'm in favor of tax reform, but I don't think tax reform should be a reason to hold hostage the middle-income tax cuts. We should vote for that — we should end the high-income tax cuts and do the things that need to be done immediately, and essentially set the stage that way.
What do you think would be the right way to get savings from entitlements? There have been a few ideas that were floated during the supercommittee negotiations and other talks — provider cuts, raising the retirement age for Social Security, raising Medicare premiums. Do you think any of those would be a good place to start?
I think it's a mistake to tackle Social Security at this point, because it isn't part of the cliff issue. In terms of Medicare, I'm in favor of sitting down and having a serious discussion about the likely impact of the Affordable Care Act, health-care reform, on the cost issue and changing the fee-for-service structure. We took some steps in the ACA on that issue, and we should do more.
What do you think should happen to the payroll tax holiday? There's been some interest from Democrats in either extending it or replacing it with something similar, but there's not much happening on that either.
I think it will depend on a couple of events: the next report on unemployment, and secondly, events in Europe. So I think it's a mistake at this point to say either yes or no. I think we need to wait — the next report is due a week from Friday, and we'll see. I don't think we should say not at all, and I don't think at this point we should embrace it.
In other words, you think that if unemployment goes down and the economy is doing well, perhaps we'd be okay letting a stimulus measure like the payroll tax cut expire?
Yes. If we continue on the path of growth — the president won in part because of the stimulus package, the recovery package, and other steps including payroll tax cut had begun to turn around the downturn. I think it was a major reason the president won. We need to continue that momentum. If it's stopped, we need to take another look.
But if it's the case that economy is doing better, then do we still need more federal unemployment benefits? Like the payroll tax holiday, they're meant to be an emergency stimulus measure.
Extending federal unemployment insurance is vital for millions of Americans laid off through no fault of their own and it serves as an important economic stimulus. The system is structured to wind down on its own as the economy continues its recovery and we should make sure that the families who need federal assistance in the meantime continue to receive this important lifeline.