President Obama is adamant that he will only agree to a “fiscal cliff” solution that raises tax rates on those making over $250,000. The Republicans in the majority in the House of Representatives are adamant that they will not vote for those tax increases—Speaker John Boehner chief among them. I asked a senior House leadership aide the what chances were that Boehner would be able to get a majority of Republicans to vote for a tax increase of any kind: “pretty close to zero.”
If you get busy mailing your holiday cards, this issue of tax rates is the only one you need to check in on from time to time to earn your citizenship merit badge. Did Republicans in the House of Representatives agree to increase marginal tax rates? That would be news indeed. Just two years ago, the anti-tax Tea Party reinvigorated the GOP, but now its members would be voting for a tax hike. Or, if you hear the president has backed off his demand that taxes must be increased, that would be worth a Facebook posting, too. This was an election that President Obama says gave him a mandate to raise this specific tax: How could he give up so easily? Of course, if there’s no movement on either side, you can return to your more fruitful personal pursuits free from worry that a resolution is aborning.
Using this three-part filter, we can examine recent news that Republican Sens. Saxby Chambliss and Lindsey Graham have expressed support for raising revenue through the tax code as a part of a deal that would avoid the automatic spending cuts and tax increases that will come on Jan. 1. Our model tells us that the first relevant fact is that they are senators. In this drama, being a senator is not very important. Democrats control the Senate, and the majority will go along with the president. The real action of the day is between Barack Obama and John Boehner. Is there a majority of votes for a tax increase in the House of Representatives? Senators can comment on that; they can send helpful memos; they can hand out mixed nuts during negotiations; but they are in the chorus, not on stage. A few select GOP senators —Minority Leader Mitch McConnell, conservative leader Jim DeMint—might influence House Republicans, but those men are also likely to be on the same page as House Speaker John Boehner.
The second problem our model points out for us is that Graham and Chambliss are not talking about tax rates. They’re talking about revenue increases, which is quite a different thing. They’d consider closing loopholes and limiting deductions, which would increase the share of taxes paid by the wealthy but would not raise their marginal tax rates. This puts them a bit to the left of anti-tax advocate Grover Norquist but still much farther to the right than Barack Obama, who wants marginal rates to increase at the end of the year for those making over $250,000 as they are scheduled to. Sen. John McCain, who has also indicated he is open to revenue increases through the tax code, has also said he would not support a tax increase. Sen. Bob Corker is in this camp, too, but he wants to cut tax rates.
Still, isn’t it a good sign for the president and an ultimate deal that Norquist is angry with Graham and Chambliss? Maybe, but not necessarily. Chambliss and Graham have clashed with Norquist before without corralling a host of followers in the GOP ranks. So it may not be sign of a larger movement. Plus, if a Republican says he is open to using the tax code to bring in revenue, they may very well hope that doing so helps them duck the accusation that they are ideologically immovable on taxes. Removed of that particular pressure, they can feel more free to ignore the president’s entreaties to embrace the more politically painful increase in tax rates.
Norquist wants any loophole closures offset with a reduction in marginal rates. That’s also John Boehner’s position. If you’re interested in the GOP vs. Grover Norquist Civil War, this is where the action is on the House side: Will a Republican member sign up for revenue increases that are not paired with a reduction in marginal tax rates? That too would put them at war with Norquist, but it still wouldn’t put that Republican in the president’s camp. It’s a sign of how far apart the president and House Republicans are that the mark of GOP apostasy is closing loopholes without cutting taxes. Obama wants Republicans to close loopholes and raise taxes.
How is this all going to get solved? Our model tells us that House Republicans have to either get their way or be bought off. The president either has to cave, allowing the Bush-era tax cuts to stay the same for the wealthy, or offer something to sweeten the deal. House Republicans owe their majority to the Tea Party. Getting them to vote for a tax-rate increase is not going to come cheap. One solution is a promise from the president and Democrats to reduce tax rates at some future date when paired with comprehensive tax reform. (Obama wants taxes to go up on those making over $250,000 now but is open to having those rates come back down as a part of reform.)
Would Republicans buy such a promise about the future? Why on earth would they trust that these lower rates would ever come to pass? One possible offering the president could make would be a major concession on Medicare and Medicaid. White House spokesman Jay Carney said the president was committed to hard choices. If he’s not going to bend on tax rates and has ruled out touching Social Security (as he essentially has), then there’s only one place left where the president can find real money in the budget-cutting game: health care entitlements. That would show that he was serious about shared sacrifice, and if the changes the president agrees to are large enough, they’d give Republicans cover to accept tough tax changes.
It would also be pretty big news. So let’s amend our model. If the president agrees to change the eligibility requirements for Medicare, that would be worth pausing during the office party. Then we’d have to see if House Republicans would buy it.
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