Harry Reid waited until just moments before the debt deal was approved to hand House Republicans a big surprise.
“We need to have a fair approach to this joint committee,” he said, closing his remarks about the deal. The new “supercommittee” would have to demand more from “billionaires and multimillionaires,” and it would have to look at tax hikes as a way to avoid the “trigger” of automatic cuts. “We’ve had too much talk these days of saying ‘there will be no revenue.’ That’s not going to happen. Otherwise, the trigger’s going to kick in.”
Two minutes before the final vote, and nobody could agree what the key component of the deal actually did. Republicans had wrangled their last “ayes” for the plan by promising that the committee would never, ever succeed in raising taxes. They reiterated as much after Reid’s speech, with House Majority Leader Eric Cantor flitting from interview to interview, promising that taxes were supercommittee kryptonite. There were “structural scoring impediments to imposing tax increases,” explained Paul Ryan, R-Wis., chairman of the House budget committee. Republicans interpret Ryan’s word like tablets brought down from Mount Sinai, so that calmed them a bit.
It shouldn’t have. Ryan is right about the politics—more about that later—but misleading about the standards. There is no real restriction on the supercommittee (and we’ll have to stop calling it that after its co-chairs are chosen—or after writers run out of Clark Kent jokes) that stops it from raising taxes. There are already ideas out there, CBO-scored and otherwise, that could—emphasis on could—find their ways into the committee’s plan. And whatever makes it into that plan gets a glide path through the House and Senate, with no opportunities for anti-tax Republicans or pledged-to-defend-Medicare Democrats to offer amendments.
So what was Ryan talking about? The committee has been ordered to offer a plan that cuts the deficit by $1.5 trillion over 10 years, based on the “2011 baseline” and based on “existing law.” Those terms are worth around $3.5 trillion. Why? They refer to the Bush tax cuts that are now scheduled to expire at the crack of midnight on Jan. 1, 2013. Letting those tax cuts expire and doing nothing else gets you far closer to closing the deficit. The new committee has to assume that, then find an additional $1.5 trillion in savings.
But Congress isn’t assuming that. Republicans (like Ryan) may write budget plans by assuming the Bush tax cuts will expire, but it’s not the policy they prefer. “They view anything higher than permanent present law as a tax hike,” explained Ryan Ellis, tax policy director for Grover Norquist’s Americans for Tax Reform. “At the end of the day, that’s the standard.” That’s true; that’s why Democrats got so much false hope on that magical morning when Norquist seemed to be open to letting the rates expire, thus liberating hundreds of Republicans from their anti-tax pledge.
Don’t get too annoyed with Norquist. Many Democrats, Barack Obama among them, don’t simply want the Bush tax cuts to expire. Obama campaigned on keeping the rates for people making less than $250,000. Rep. Kathy Hochul, the Democrat who won this spring’s special election in New York, floated the idea of keeping the rates for people making under $500,000.
These are all reasons why debt-deal negotiators decided to throw up their hands, create a new committee, and douse it with gamma rays. Congress can’t get anything done. Negotiators can’t get anything done. Don’t even ask if you can push this stuff through the relevant committees.
But tax reformers are dizzy optimists. They see a situation where the Bush tax cuts can’t be gimmicked any further; they see an opening. As the debt deal was being hammered out, I listened to Sen. Ron Wyden, D-Ore., and Sen. Dan Coats, R-Ind., pitch their tax-reform plan to the Ripon Society, a group of moderate Republicans. They’d just grappled with the bad news that there would be no “grand bargain” to make tax reform move faster. Republicans just couldn’t get out of the no-tax-hikes-ever foxhole.
“If you look at tax reform in the last three weeks, we were almost at the top of the roller coaster,” Wyden groused. “There was a period where tax reform made it into the grand bargain [between] President Obama and Speaker Boehner, then it made it into the majority leaders’ plan. The Gang of Six included it in their proposal. So it was almost at the top of the mountain—only after about 72 hours, they said, we’re for it, but maybe another time.”
Coming soon: another time. If the supercommittee can take on taxes at all, as Democrats want it to, it will have to find something that raises more revenue than the lapsing Bush tax cuts. The Wyden-Coats plan is a start—it raises just as much revenue, although the math gets harder at the end of the decade. It collapses the number of tax brackets from six to three—15, 25, and 35 percent—and lowers the corporate income tax. If people don’t like that, they have the Gang of Six framework to go on—not scored, less detailed, but something at least half the Senate likes to talk about. There are limits, but this is what a lot of members want to use the bludgeoning power of the supercommittee for.
“They’re going to be restrained on what they can do with tax reform,” admitted Sen. Kent Conrad, D-N.D., in a short conversation this week. “The baselines are going to make it very difficult to do. Frankly, the committees are going to be suggesting items to them.”
The goal, Conrad explained, is to change the conversation to something everyone wants to do but can’t get through the regular process. Get some of it over to the House and Senate. All of a sudden, you’re on the rollercoaster again.
“My view has always been that that part of the reform couldn’t be done until the end of next year,” he said. “This special committee could set the parameters for tax reform—how much needs to be raised, how you’re going to do it, what’s the strategy for doing it, broadening the base, even reducing rates, safeguarding progressivity so that it isn’t adversely effected. The special committee can set all of those parameters.”
And it can. Reid was right. That gets us to the reason that Ryan, too, was partly right. Making the numbers for tax reform work is tough but possible. Getting Republicans to agree to it is tougher, and maybe impossible. One reason the Grand Bargain fell apart was that Republican negotiators refused to budge on taxes. The reason the triggers don’t include any taxes? A-ha! You guessed it.
Rep. Dave Camp, R-Mich., the chairman of the House Ways and Means Committee, talks up tax reform as much as Conrad does. But even he’s cool to the idea of using it to raise more money.
“Eventually [tax reform is] going to have to go through committee process, with amendments,” he said. “I don’t think you want tax reform to be viewed as debt reduction. You want it to be viewed as reform.”
Remember how we got to this point, and how we set up the fight we’re going to have in the fall. Reid punted. So did Mitch McConnell. So did everyone else. Instead of trying to reform taxes and entitlements now, they decided that Congress could only do that if it was threatened with something worse—the triggers. Automatic defense cuts! Automatic cuts to Medicare providers! What could be worse?
Well, if you’re a House Republican, progressive tax reform might be worse. If you’re a Democrat, entitlement reform might be worse. While Reid, Cantor, and everyone else try to spin the negotiations, the thing to watch is whether a Republican who’s open to revenue-raising makes it onto the committee. If a Gang of Sixer, or Dan Coats, or Rob Portman makes it on to the committee, then there’s a chance that Reid will be right. If not, we know what’ll hobble this project, and we already know how it will end.