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Deficit Panel Faces Tax Fight

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House Budget Chairman Paul Ryan and other Republicans already face conflicts with Democrats over taxes in the new deficit deal.

Obama administration economic adviser Gene Sperling argued in an Aug. 1 blog post of his own that it’s up to the committee to choose its own baseline, notwithstanding a reference in the new law citing the existing CBO baseline.

The new law “does not anywhere require the joint committee to work off a current law baseline,” Sperling wrote, noting that Congress frequently instructs the CBO to use alternative baselines, including for Ryan’s own budget.

And even if the panel does use the CBO assumptions, there are plenty of other tax increases that would score as deficit reduction, Sperling noted, such as eliminating tax subsidies for oil companies or corporate jets.

“These types of tax changes have been a major part of the recent deficit reduction conversation and would be a smart part of an overall balanced plan,” Sperling wrote.

Indeed, the potential tax increases that would count as deficit reduction by the CBO are nearly infinite — including shrinking business and individual deductions and an Obama proposal to create parity between wealthy and middle-class tax deductions.

But many lawmakers, including Senate Minority Leader Mitch McConnell (R-Ky.), would prefer the committee consider a broader package that includes tax code reform.

One example is the bipartisan “gang of six” Senate plan, which has not yet been scored by the CBO. But it is unclear whether it would qualify under the House Republicans’ interpretation of the baseline issue.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said the gang of six plan is important because it eliminates the alternative minimum tax. The AMT is not indexed for inflation and is typically patched each year by Congress to avoid hitting more taxpayers.

“One of the big concerns we have is that a lot of the budget time bombs that are out there will be ignored, so any reform plan that doesn’t fix the AMT [for example] just means they are trying to fix the problem by papering over some of the outstanding issues,” MacGuineas said.

However, one item that would qualify is the $1.3 trillion war spending cut proposed by Reid in his deficit reduction bill.

Republicans dismiss the war spending cuts as “gimmicks” because the White House already plans to wind down war spending. But the CBO scores them as cuts.

“We should never underestimate the ability of policymakers to find bipartisan ways around tough choices,” MacGuineas warned. “But if they even attempt to go after those war savings, people should scream bloody gimmicking.”

But there is a further issue that seems more likely to be the major hurdle for the deal to clear: Can an agreement with tax increases even pass the House?

Republicans have already signaled that they would not support a deficit reduction package that uses tax increases, and Democrats will not likely support a package of just spending cuts.

Even if Democrats get one of the six Republicans on the panel to back a deal with tax increases, it’s unlikely the package would win enough votes to get through the Republican-run House.

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