Can Tax and Social Security Heresy Lead to a Budget Deal?

By :: February 24th, 2011

Ideological heresy may not quite be breaking out all over Washington, but in the growing debate over the burgeoning debt, there are helpful hints of apostasy. And hope of a bipartisan consensus for responsible deficit reduction may lie atop those tiny waves of dissent.

The latest whiff of hopeful heterodoxy comes from three Republican senators-- Saxby Chambliss of Georgia, Mike Crapo of Idaho, and Tom Coburn of Oklahoma. In quiet backroom negotiations and in a remarkable public exchange of letters with Grover Norquist of American for Tax Reform, the three lawmakers suggest that they might—might—support revenue-raising tax reform as part of a broader deficit reduction deal.

All of this is happening in code, and with classic Washington indirection. The three lawmakers—none of whom would ever be confused with a Rockefeller Republican—are the GOP half of a small bipartisan group of senators that is trying to develop a compromise deficit reduction plan. As members of President Obama’s deficit commission, Crapo and Coburn endorsed the proposal offered late last year by panel chairs Erskine Bowles and Alan Simpson. That plan included a call for a broad-based tax reform that would lower rates, eliminate most tax preferences, and raise about $800 billion in revenues from 2015 thr0ugh 2020.

When word spread that the three were working with Senate Democrats to design a bipartisan budget that would reduce spending, restructure Social Security, and reform and raise taxes, Norquist pounced. The three senators, he wrote, “were implicated as parties to a bipartisan budget deal containing a net tax increase.”  

Norquist, the Tomás de Torquemada of tax policy, accepts no breach of his “Taxpayer Protection Pledge,” a vow to never raise taxes under any circumstances. According to the ATR website, the pledge has been signed by 237 House members and 41 senators, including Chambliss, Crapo and Coburn. Torquemada, you may recall, burned thousands of non-believers at the stake in the 15th century and was fondly known as “the hammer of heretics.”    

Within hours, the three lawmakers responded with a very carefully written letter of their own.  “Our pledge,” they wrote, “is to protect taxpayers, not special interests. To do so we must analyze every aspect of the federal budget, including the tax code.” On the other hand, they asserted their belief that “tax hikes will hinder, not promote, economic growth.” Finally, they included the usual disclaimer:  The news story that reported their participation in budget talks provided only “rumored details.”

Before the day was out, Norquist gave the three his blessing. Their letter, he said, was “very encouraging.”

Yet, Chambliss, Crapo, and Coburn (who is said to have a good working relationship with Obama) never did rule out new revenues in a consensus budget deal. And Norquist seemed uncharacteristically conciliatory. Maybe it is the near-arrival of spring, but I find this encouraging.  

Of course, no bipartisan agreement will be reached with GOP heterodoxy alone. The three Democrats in the Senate’s gang of six—Budget Committee Chairman Kent Conrad (D-ND), Virginia’s Mark Warner and, most importantly, #2 Senate Democrat Dick Durbin (D-IL) have gone out on their own limb by expressing a willingness to tackle Social Security. This issue generates as much heat on the left as tax hikes do on the right. Liberal bloggers have already dubbed them the “cat food caucus” for their trouble.

These six pols-- who have yet to reach consensus even among themselves—have a long way to go before they can round up the 50 or 60 votes necessary to pass a serious budget in the Senate, to say nothing of getting it out of the House.  And, as regular readers of TaxVox know, I have been extremely skeptical of a big budget deal before the next presidential election. Still, these bits of rebellion against party orthodoxy matter. They are small first steps. But they are steps.

11Comments

  1. Michael Bindner  ::  3:49 pm on February 24th, 2011:

    I suspect the players are realizing that they have two choices – a deal that raises taxes by closing loopholes and gridlock, which has the 2001, 2003 and 2010 cuts expire with no action required. While a down economy could lead to more capitulation by Obama, I suspect that a down economy is not expected. In truth, raising everyone’s taxes would likely cause more growth than it would inhibit by giving businesses an incentive to spend rather than be taxed.

    Hoarding money does nothing for economic growth – which proves that Supply Side economics is false on the most basic of levels. If givign businesses excess cash were the answer to economic growth, we would be in double digits today, rather than teetering on a recession because the wealthy are playing the oil futures market.

  2. Sid F.  ::  9:14 pm on February 24th, 2011:

    There is a third choice. On fourth and long, deep in your own territory you punt. In this case it means there are token spending cuts and the Tax cuts of 2001, 2003 and 2010 are extended to past the 2012 election for the new or re-elected President to deal with.

    In 2013 with a Republican President elected it would have been on a platform to cut spending (and cut taxes even further, particularly on corporations and investment income) and there will be a Republican Congress and major domestic programs are eliminated.

    If Obama is re-elected it will have been on a platform to cut spending and not raise taxes (which would be impossible anyway) and there will be a Republican Congress and major domestic programs are eliminated.

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  9. AMT buff  ::  12:39 am on February 25th, 2011:

    Any deal that does not prominently break longstanding government promises of benefits to the middle class is inadequate to reassure the bond market. Only an adequate deal deserves to include major tax increases from current rates. I believe that a complete resolution of the fiscal gap would win Republican support for very large tax increases. But the deal has to be complete and permanent.

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  11. Michael Bindner  ::  4:48 pm on February 28th, 2011:

    There is no imminent crisis for the bond market to worry about. Eventually the HI payroll tax will be broadenned to a business income tax or VAT and will be set at a high enough rate to pay for senior Medicare and Medicaid. There is a decade to do this.

    The only middle class entitlement that needs to be gotten rid of quickly is the 2010 Tax Cut deal. That will take care of itself – either with a deal to do base broadening while minimizing rate cuts or by letting gridlock rule the day. If the economy is not in free fall in 2012, I suspect that this prospect will force the GOP to geek on tax cuts for the rich – although I would not put it past Obama to capitulate if the economy is still in bad shape.

    Unless the GOP has a 61 vote majority in 2013, they will have to deal or be blamed for taxes going up.