Call this Barack Obama’s worst nightmare. After having set up the 2012 election as a choice between an activist incumbent President and a do-nothing Congress, what could be worse than a Congress that actually accomplishes some fiscal reform? The horror! Fortunately, his party swooped in for the block:
Congressional Republicans have for the first time retreated from their hard-line stance against new taxes, offering to raise federal tax collections by nearly $300 billion over the next decade as part of a plan to tame the national debt.
But Democrats rejected the offer Tuesday — along with the notion that Republicans had made a significant concession that could end the long-standing political impasse — leaving a special debt-reduction committee far from compromise with less than two weeks until its Thanksgiving deadline. …
“They’re anxious to promote a certain concept with all of you,” Sen. John F. Kerry (D-Mass.), one of the negotiators, told reporters. “I’ll be very clear that whatever they put there doesn’t get the job done.”
Senate Minority Leader Mitch McConnell (R-Ky.) fired back that Republicans are “working diligently to get a solution” and accused Democrats of trying to block a deal. McConnell said he suspected that “the folks down at the White House are pulling for failure because, you see, if the joint committee succeeds, it steps on the story line that they’ve been peddling, which is that you can’t do anything with the Republicans in Congress.”
Republicans offered a restructuring of the personal-income tax code that would both lower rates and raise revenues, thanks to the elimination of some deductions and exemptions. That would capture more income as taxable while flattening the rate structure. The last time Congress and a President undertook a serious effort in this direction, the result was an economic boom that ended up greatly increasing revenues.
The GOP took some risk in pursuing this position. Just the mere hint that Republicans would offer revenue increases as part of a compromise had grassroots activists hopping mad over the weekend. John Boehner had to clarify on ABC’s This Week that the revenues would come from a broader tax reform that would encourage investment and produce more stable economic growth, but that didn’t mollify too many people. Despite past history, Democrats stuck to their static-analysis argument that lower rates mean less revenue:
The plan’s “centerpiece” would be Republican acceptance of eliminating certain tax deductions for the wealthy in exchange for a permanent reduction of the marginal tax rates set under President George W. Bush, said one aide to a Republican super committee member. The GOP would set the income-tax rate on the richest at 28 percent.
Republicans say they could accept up to $300 billion in new taxes as part of a plan that cuts the deficit by $1.2 trillion over 10 years—the goal the super committee must meet to stave off mandatory cuts under this summer’s Budget Control Act.
But Democrats say Republicans calculated those figures by counting the savings portion of eliminating some tax deductions but not counting trillions in lost revenue from reducing marginal-tax rates. The Congressional Budget Office would likely score the proposal as increasing deficits when compared to current law.
Clearly the Democrats aren’t interested in tax reform, even if it produces more revenue; they’re only interested in tax increases. That leaves the best win-win scenario off the table for both parties, which a fundamental tax reform package would be. Democrats could argue that they eliminated fat-cat deductions and exemptions while Republicans could brag about lowering rates, and the resulting growth would reflect well on both parties. Unfortunately, all that has to take a back seat to Obama’s 2012 electoral strategy that will paint Republicans as obstructionists. Anyone paying attention will immediately diagnose this as a bad case of projection.