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  • Tax Increases Should Be Off the Table in Debt Limit Negotiations

    Congressional Quarterly reported yesterday that Democrats, led by Representative Chris Van Hollen (D–MD), are pushing to use “tax overhaul” as a means to cut a deal to increase the debt ceiling by $2.4 trillion:

    Van Hollen also revealed that Democrats on the panel have “put a whole menu of options on the table” to eliminate corporate tax breaks, which so far have not been accepted by Republican members. The proposals include repealing tax breaks for the oil and gas industry, corporate jets and private jets, he said. “It’s a whole range of special interest tax earmarks in the code,” he added.

    Conservatives want to get rid of those special interest tax breaks as part of a revenue-neutral comprehensive tax reform, not as a means to get more money for free-spending politicians to waste. It is good tax policy to rid the tax code of distortions that favor one sector of the economy over another, yet it is bad tax policy to remove every single distortion as a means to raise money for a federal government that has already spent us into a $14.3 trillion hole.

    The federal government can’t be trusted with new revenues, because they will find new programs to spend it on. Congress has yet to conduct a comprehensive scale-back of programs that waste money. Just look at Senator Tom Coburn’s (R–OK) numerous reports showing the rampant waste coming from Washington, D.C.:

    These reports are strong evidence that our federally elected officials have let us down on fiscal responsibility.

    Liberals are spinning a vote on an amendment by Senator Coburn as an implicit endorsement of the idea that repealing all tax credits for corporations, without offset cuts to overall taxes, are an acceptable as a means to balance the budget:

    Strong Republican support for a Senate bill that would repeal tax credits for ethanol “was a very important signal that Republicans were willing to get rid of special interest tax breaks for the purpose of deficit reduction,” Van Hollen said. The Senate defeated a motion to shut off debate to consider the measure, introduced by Tom Coburn, R-Okla.

    The vote on the Coburn amendment is more complicated than Van Hollen admits. Coburn offered an amendment (S. Amdt. 436) to S. 782, the Economic Development Revitalization Act of 2011, to repeal the Volumetric Ethanol Excise Tax Credit. Coburn then filed cloture on the amendment in an effort to get a vote on it, but the cloture motion was defeated 40–59. That vote could be considered merely an effort by conservatives to commence a debate to repeal a special interest tax earmark, not an endorsement of the idea of repealing all corporate special interest tax provisions without offsets.

    An elimination of this ethanol excise tax credit that may remove a special interest tax provision from the code is a good development. But it would be a tax hike on the American people if not offset by an across-the-board tax cut or a reduction in a specific unfair tax.

    As Heritage’s J. D. Foster explains, a tax hike occurs when one changes tax law and it results in higher revenues:

    A tax hike occurs when, as a consequence of a change in the tax law, total tax receipts are projected to be higher than they would be under current policy using traditional quasi-static scoring employed by the Treasury Department and by the congressional Joint Committee on Taxation. This change in the tax law may arise because of new legislation or because (through inaction) Congress allows existing tax provisions to expire.

    The Coburn amendment would have been a tax hike if not offset. Coburn would argue that this tax provision is a distortion to the tax code and a special interest “tax earmark.” He is correct, yet many conservatives want to see this provision and other distortions to the tax code removed through tax reform without raising revenues for the federal government under the standard static scoring system used by the federal government.

    Foster cites the Bowles–Simpson plan as a great example of “tax reform” being used as cover for a sneaky tax hike:

    The Bowles–Simpson plan proposed tax reform based on eliminating all so-called tax expenditures. It then wisely reduced tax rates. However, it used only part of the revenue increase from eliminating tax expenditures for rate reduction, using the balance of the revenue increase to reduce the budget deficit. The plan was very clear about this. Page 25 of the report states that the commission proposes tax reform that relies on “zero-based budgeting” by eliminating “all income tax expenditures (but maintaining the current payroll tax base, which should be modified only in the context of Social Security reform), and then using the revenue to lower rates and reduce deficits.” Using traditional scoring, a tax proposal can reduce budget deficits only if it raises aggregate tax receipts. The Bowles–Simpson exercise was mislabeled. It is not tax reform; it is a tax-hiking exercise in tax reform garb, a common ruse of tax hike proponents.

    Senator Jim DeMint (R–SC) had filed an amendment (S. Amdt. 460) to offset the Coburn repeal of the tax credit with a repeal of the death tax. That amendment would have made the Coburn vote revenue neutral and consistent with the idea that repealing tax provisions should not be done as a means to increase revenues.

    Heritage’s Curtis Dubay specifically called out the “extension of income tax credits and excise tax credits for ethanol” to be “scrapped without hesitation.” Coburn’s heart is in the right place to get rid of this special interest tax provision for a small sector of the economy, yet it should be done in a revenue-neutral manner so that conservatives don’t feed the beast of government with more and more revenues to waste on programs such as the National Endowment for the Arts, a failed stimulus, and Obamacare.

    The bottom line is that any tax increases, or a version of a “Debt Failsafe Trigger,” would be a disaster for the conservative movement and taxpaying Americans.

    Update (3:20 PM ET 6/16/11):

    The Hill reports that Senator Dianne Feinstein (D-CA) just passed an amendment identical to the Coburn Amendment on a 73-27 vote.

    The Senate voted 73-27 Thursday to kill a major tax break that benefits the ethanol industry, handing a political win to a bipartisan group of lawmakers that call the incentive needless and expensive.  The vote also could have ramifications on future votes to reduce the deficit. Much of the GOP conference supported Feinstein’s bill even though it does not include another tax break to offset the elimination of the ethanol tax credit.

    ATR put out a release applauding the vote and urging lawmakers to adopt Senator DeMint’s amendment to repeal the Renewable Fuel Standard (the mandate) and to eliminate the death tax.

    Sen. DeMint’s amendment repeals the real policy distorting the energy market — the Renewable Fuel Standard (the mandate)—and eliminates the death tax. The tax cut contained within the DeMint amendment overwhelms the Feinstein/Coburn tax hike allowing Taxpayer Protection Pledge signers to freely vote to eliminate the ethanol tax credit and tariff so long as they also vote for the DeMint amendment. Again, as long as Taxpayer Protection Pledge signers that voted for the Feinstein/Coburn amendment also vote for the DeMint amendment, they will be in keeping with the Pledge they made to their constituents. Taken together, this elimination of favoritism toward ethanol is not a violation of the Taxpayer Protection Pledge.

    The left would be making a big mistake if they argued that this vote is evidence of a willingness on the part of conservatives to allow tax increases to be included in a debt limit increase.  This vote does not translate into the left wing talking point that Republicans are willing to increase the tax burden on the economy to buy some cuts to spending programs.

    Posted in Ongoing Priorities [slideshow_deploy]

    11 Responses to Tax Increases Should Be Off the Table in Debt Limit Negotiations

    1. George Colgrove, VA says:

      Before any of you congress member considers tax increases, just picture this, 114 million taxpaying Clint Eastwoods looking at you with that look and saying "Go ahead, make my day."

      Might want to add to that raising the debt limit. We do not want that either. What we have been asking for since 2006 and every election thereafter is to cut government and provide a balanced budget NOW! Not in 10 years.

      Voting is not that far away and the primaries are creeping upon us. We will get rid on you in the primaries, and if we fail there, you will be gone on election day.

      Considering lowering taxes will help the economy, my compromise is keep taxes the way they are – for now. This discussion is done.

      We can have the tax lowering discussion in the next congress.

    2. Redfray, Pea Ridge, says:

      With such terrible tax laws in place, that raises our taxes when an amendment has been removed, we need to end all tax laws , and start over. This is the most puzzeling double talk I have ever heard. I thought we had well educated sentors and reps in washington d.c., but this sound like they are all poorly educated in serving the people. Maybe I'm looking at this the wrong way? These elected people are very smart and have devised away of making sure taxes are never in the taxpayers favor.

    3. Kevin H, college par says:

      This is the current problem with the far right and conservatives in Congress – they are unwilling to compromise and negotiate for the greater good…and unwilling to have a balanced approach to deficit reduction. It's ridiculous for Heritage to ask for revenues to be off the table, when taxes have never been so low (have you forgotten what the top marginal income tax rate was in 1980 or where the estate tax or cap gains and dividends were just a decade ago?).

      This unwillingness to compromise and take on a balanced approach with shared sacrifice is why the Congressional Republicans have the lowest approval rating of all federal policymakers, including the President and Congressional Democrats.

    4. Jeff, Illinois says:

      Amen to Kevin H.

      The GOP puts their own self interest and the corporate lobbyists who've bought them ahead of the country. People are starting to wake up . .

      And I still can't get over that vote on the Oil Company subsidy . .

    5. George Colgrove, VA says:

      Kevin H said: "This unwillingness to compromise and take on a balanced approach with shared sacrifice is why the Congressional Republicans have the lowest approval rating of all federal policymakers, including the President and Congressional Democrats."

      Quite wrong Kevin, we are constantly booting these goons out because of spending – not taxes. Congress got its recent poll results for not cutting the $100 billion they promiced. When we found out we got a tiny couple hundered million in net cuts, we were frustrated.

      Kevin, you are heavily invested in the government – perhaps a worker – who knows. But this madness cannot be sustained. Study the Greece situation. It is now being reported that we are in relatively worse shape.

      You have been advocating raiding the wealthy for tax collection. Please man, understand this, if we took all the earned income from the so called extreme wealthy and taxed it at 100%, there would not be enough to pay off the deficit.

      At that point, and this is where it is difficult for you to understand, these people will be out of cash. They will be out of incentive. They will be out of reason. In every way, their resolve to continue their business will be over. They will simply take what they have left and move on leaving multitudes of employees to fend for themselves. Not only have you stripped out all future earning potential, but your ideology will leave millions without a job.

      This experiment was tried by FDR and he drove us into a depression.

      The fact is Kevin, you are right durring Clinton's administration we were working off of balanced budgets. The GOP laid down the line and Clinton abided. Politcally is did well for him. Since Ford, the only president that did not add to the current national debt was Clinton. You win that score.

      But since Clinton, tax revenue has essentially stayed the same in 2011 dollars. There was a peak in 2006/2007 to $2.7 trillion (+/-), but then again an economic crash quickly followed. What has changed is that federal spending has grown by 58%. And when you look at discressionary spending today, we are unfunded by 57%. The problem is not with revenue. We may likely be a $100 billion over last year. The problem is spending.

      Even if I were to take you at your word. If we compromize and raise revenu at the detriment of the economy, the corresponding cuts will not be pretty. As of now we are $1.6 trillion short.

    6. Stirling, Pennsylvan says:

      "negotiate for the greater good" – Sounds a lot like a Socialist (old Soviet Union) mantra.. We are a country founded on Individual Rights, NOT Collective Rights. The problem is liberals ideology is against the individual and the limits which the constitution law forces government to stay within.

    7. Pingback: Publius Daily Digest

    8. Henry says:

      We need to raise taxes on people making $200,000 and above, and cut all the tax write offs on corporations. How can a General Electric corporation pay zero taxes? Cut all tax loopholes.

      Then cut all government by a 1/3. Too many on the government payroll.

      Then close all military bases around the world and pull out of all wars. Bring home all equipment, guns, leave nothing behind. Cut our military in 1/2. Then start rebuilding our military equipment.

      • Nick says:

        Wow thats extremely dumb and ignorant. Sorry…but cut our military in half?? We already are outnumbered by China by 50%. If we ever came to war….they have 19 million reaching military age every year, while we have 4 million. We are severely outnumbered, and thats why we need to spend more for better technology so we dont need as many soldiers. We need the expensive guided missiles and stealth technology. What we DO NOT need are the handouts.

        And you focus on GE one year to cry they dont pay taxes. You need to look at more than last year. As much as I hate GE, this is the truth.

        2005 – $3.8 billion on $10.2 billion (37% effective rate)
        2006 – $3.95 billion on $9.9 billion (39% effective rate)
        2007 – $4.1 billion on $8.8 billion (46% effective rate)

        One or two years during a recession with losses doesnt mean corporations dont pay taxes. Thats patently false.

    9. W. Hatch says:

      There is a definite lack of civility in Washington. Cooler minds should prevail if in fact our nation is to reach an acceptable solution to our defict/debt crisis. From my curb level perspective, I can only conclude that an honest discussion involving both sides of the aisle is an impossibility given the congressional seniority system that breeds a corrupting partisan power exercised by our senior senators and representatives. Perhaps they should step down, move aside, and let negotiations begin between the freshman senators and representatives from both parties since it is their futures that the good old boys are feuding about. Who knows, they may just be better money managers than those who currently hold the purse strings.

    10. W. Hatch, Murphy, NC says:

      My previous comment did not post for whatever reason. It was a simple suggestion that the good-old-boys club on each side step aside and let the freshmen senators and representatives from both sides take over the debt/deficit discussions given it is their future that is at stake. Maybe we could see some honesty surface that would spell out what taxes are to be raised, what deductions would be eliminated, what entitlements would be cut or modified, etc. What we are getting now is language that is nothing but vitriolic – caustic, sharp with the intent to injure the opposing party. What kind of leadership is this?

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