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Tax Issues Could Derail ‘Gang of Six’

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“Gang of six” Sen. Mike Crapo defended the group's deficit reduction proposal Wednesday.

Updated: 8:55 p.m.

The debate over the “gang of six” deficit reduction plan, like the “grand bargain” before it, will likely come down to one word: taxes.

The $3.7 trillion bipartisan plan enjoyed a surge of support from both parties Tuesday, but the tax question that bedeviled earlier negotiations between Speaker John Boehner (R-Ohio) and President Barack Obama could also trip up the group’s plan.

Beyond the tax issue, the actual group members still haven’t ironed out all of the details, and there doesn’t appear to be time to get the complicated package done before the Aug. 2 debt deadline, or even within the White House’s window of a “few days” after that. So, in the meantime, Senate Majority Leader Harry Reid (D-Nev.) said he would file a procedural motion to begin work on the GOP’s controversial Cut, Cap and Balance legislation.

Obama met with House and Senate Democratic leaders Wednesday afternoon, followed by a separate meeting with Boehner and House Majority Leader Eric Cantor (R-Va.). Unlike previous sessions, however, all sides were tight-lipped afterward.

Republican gang of six members are selling the plan to their colleagues and the public as a $1.5 trillion tax cut, although critics say it looks like a tax increase of $2 trillion or more.

Whoever wins that battle will determine whether the plan stays viable, Republican Senators say. They debated the issue at length during a luncheon Wednesday, with several Senators saying they weren’t yet convinced one way or the other.

Sen. Chuck Grassley (R-Iowa) was one of those Members who hasn’t made up his mind.

“My sense is that whether it flies is going to be based on the proposition of whether it increases taxes. ... If this is going to bring in revenue beyond just economic growth, or the fact that you have a simpler tax code and it enhances economic activity, it’s not gonna fly,” he said.

House Budget Chairman Paul Ryan’s (R-Wis.) staff posted an analysis on his website, saying the plan appears to increase revenues by at least $2 trillion. Ryan, a tea party favorite, also criticized the deal in a statement. And the Heritage Foundation said the plan appears to rely on a big tax increase.

But Sen. Mike Crapo (R-Idaho), who helped craft the tentative deal, said the additional revenue brought in by the group’s plan comes not from raising taxes, but from economic growth.

“Obviously, once you make a proposal that puts everything on the table, the knives come out,” Crapo said, noting attacks from some conservative groups as well as liberal ones upset by spending cuts. But Crapo said analysis that calls the plan a tax increase is “just not true.”

“There is more rate reduction in our policy proposals, in our plan, than there is elimination of tax expenditures. Period,” he said.

And Crapo said what extra revenue that comes in will be from economic growth spurred by lower rates and the simpler tax code that the gang of six envisions.

“Conservative assumptions cover this question of how the revenue will be obtained,” he said, and they “make the argument about a tax increase inaccurate.”

Gang of six member Sen. Saxby Chambliss (R-Ga.) said the analysis posted by Ryan’s staff on his website is “just wrong.”

“He’s using a baseline that is not the March baseline is all I can say. If this plan is scored by CBO today, it would be a $1.5 trillion tax cut. The facts are what the facts are,” Chambliss said.

But the Congressional Budget Office assumes the Bush-era tax cuts will expire on schedule in 2013.

And that could be the key. Extending the Bush tax rates for the next decade costs about $3.5 trillion. And many Republicans — including Ryan — assert that allowing tax cuts to expire should be treated as a tax increase.

But some powerful forces in the GOP have so far held their fire, including anti-tax advocate Grover Norquist.

Crapo said he hopes Norquist ultimately gets behind the plan.

“I’ve worked with Grover over the years and I’ve kept in touch with him. ... What we are talking about — broadening the base, moving more toward a flatter tax and dramatically reforming the tax code — is exactly the sort of thing that Americans for Tax Reform promotes,” Crapo said.

Some House Republicans, including Cantor, have stated concerns about the additional revenue assumed in the group’s plan. Republican Study Committee Chairman Jim Jordan (Ohio) labeled it a tax increase.

One senior Democratic aide pronounced the gang of six plan irrelevant to the race to increase the debt ceiling, with Senate Democratic and Republican leaders moving forward with a fallback plan instead and House Republicans still unable to get their Conference to back a compromise that touches revenue.

Even though White House spokesman Jay Carney suggested Wednesday that President Barack Obama might sign a short-term debt ceiling increase that would last a “few days” if both parties agreed to a larger deal, sources said the plan would not be ready, partly because the gang of six is still warring internally over a few key issues.

“This would have been a great proposal to announce in April, or a month ago,” the aide said. “The train has left the station.”

The group’s idea, however, could still play a role after the debt ceiling is increased.

Reid and Senate Minority Leader Mitch McConnell (R-Ky.) have crafted a fallback plan that pairs a debt limit increase with creation of a joint committee empowered to send a deficit reduction package to the House and Senate floors.

Senate Budget Chairman Kent Conrad (D-N.D.), a member of the gang of six, said Reid is “open to” letting the group’s plan come up for a vote regardless of what the joint panel devises.

Republicans aren’t the only ones nervous about the plan. Democratic members of the gang of six on Wednesday briefed a group of House Democrats, including House Minority Whip Steny Hoyer (Md.), as they looked to build support for their plan.

But while some Democrats were generally supportive, they said the proposal appeared to lack crucial details.

“There are a lot of questions because there aren’t details both about the process and about the content. It’s an eleventh-hour type situation,” Rep. Peter Welch (D-Vt.) said.

Gang of six member Sen. Mark Warner (D-Va.) said he did not know how much time would be needed to draft the plan into legislative language. But he did indicate that elements of the proposal — which includes reforming the tax code — would take longer than two weeks.

“Clearly, we have always anticipated a two-step process,” Warner said. “We are not going to reform the tax code in even a few weeks or a few months.”

Other liberals simply ripped the plan as an unacceptable gutting of important safety-net programs.

Sen. Bernie Sanders (I-Vt.) sent out a statement sarcastically applauding the GOP Members’ “victory” in negotiating a deal that achieves “their long-term goal of dismantling every major social program relevant to working families.”

Editor's Note:

This article updates the print version to include information about President Barack Obama’s Wednesday meetings with Congressional leaders.

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