House Republicans on Wednesday showed a new willingness to talk about closing tax loopholes in the context of negotiations to raise the nation’s $14.3 billion debt ceiling.
The signal was made by Majority Leader Eric Cantor (R-Va.), the man who left debt talks led by Vice President Biden two weeks ago over Democrats’ insistence on including tax increases as part of a deficit-reduction package.
“If the president wants to talk loopholes, we’ll talk loopholes,” Cantor said, with one caveat: Any revenue gained from ending a tax break should be used to lower other taxes, the second-ranking House Republican said at his weekly press briefing.
That drew a sharp response from Democrats, who said the demand would prevent them from winning any deficit cuts through the elimination of tax loopholes.
Sen. Charles Schumer (D-N.Y.) took credit for Cantor’s flexibility, but said Republicans were moving backward by demanding that the tax component of a deficit-reduction package be revenue-neutral.
“Our focus on tax loopholes seems to be putting Republicans on their heels on the issue of revenues,” Schumer said in a statement. “But if Republicans are going to say we can only close those loopholes in a revenue-neutral way, it is like taking one step forward and then two steps back.”
Schumer said the whole point of getting rid of the loopholes should be to contribute to the reduction of public debt, but Cantor said killing loopholes could help the economy only if they were paired with offsetting tax cuts.
“I feel that loopholes — we’ve said all along that preferences in the code aren’t something that helps economic growth overall, but listen, we’re not for anything that increases taxes,” Cantor said.
“Any discussion about loopholes must be accompanied by an offset in tax cuts.”
While Cantor’s move left clear ground between the two sides, it also provided a possible opening for tax cuts supported by both parties to be included in a final package.
Schumer and Senate Democrats have floated the extension of a payroll-tax reduction enacted earlier this year, which they say would provide more stimulus to the economy. Republicans and the White House supported that idea in December.
Both the White House and Senate Democrats are worried poor job growth could hurt Obama and cost Democrats the Senate in the 2012 elections. The party already faces a difficult task in defending 23 seats, and the unemployment rate is expected to be stable at 9.1 percent when new jobs figures for June are released on Friday.
Cantor and other Republicans previously had insisted that talks about ending tax breaks should be considered as part of a wider tax reform discussion that could also include lower corporate or individual rates. In the debt talks, Republicans have been focused on reducing discretionary and mandatory spending, including in entitlement programs.
Democrats have pressed to kill tax breaks benefiting the wealthy and businesses, focusing their attention on measures benefiting oil-and-gas companies and corporate owners of jets.
Sen. John Thune of South Dakota was skeptical that there would be enough time to include the scrapping of tax breaks in any deficit deal that would allow the $14.3 trillion debt ceiling to be raised by Treasury’s Aug. 2 deadline, while Sen. Jon Kyl of Arizona stressed that the goal of scrapping tax credits and deductions should be to lower rates.
“Trying to do that in this context then raises the question, are you trying to raise revenues, or are you trying to get a more coherent tax code?” said Kyl, the minority whip. “If you’re trying to do the latter, it’s probably not best done in this context.”
“If you’re trying to do it to raise revenue, then that’s something that obviously is not going to pass,” he added, echoing Cantor.
Senate Minority Leader Mitch McConnell (R-Ky.) also said any effort to “cherry pick” tax loopholes as part of the debt-ceiling talks would be “pretty challenging.”
“There is a willingness among Republicans to look at tax provisions, but the assumption is that on short notice like this it is really hard to do that in a meaningful way,” said Thune, the No. 4 Senate Republican.
Separately, Kyl said Republican negotiators have agreed to boost government revenues by $153 billion to $200 billion as part of a deficit-reduction deal. But Kyl said GOP negotiators have not agreed that any new revenues should come from increasing taxes or closing special tax breaks.
“This has nothing to do with taxes. These are things like fee increases and results of sales,” said Kyl. “It’s actually between $153 billion and a little over $200 billion in what should be characterized as revenues. They are receipts to the federal government.”
Kyl also expressed skepticism about including a scaled-back tax reform that could potentially include a permanent fix to the Alternative Minimum Tax and a payroll-tax holiday.
The Arizona Republican also expressed skepticism about including a scaled-back tax reform that could include a permanent fix to the Alternative Minimum Tax and a payroll-tax holiday.
“Those are two things that Democrats have always wanted to accomplish,” he said, rejecting the idea that those proposals could be a carrot for Republicans.
Thune, meanwhile, said any deal where loopholes were exchanged for a payroll-tax deduction or other stimulative measures would have to be revenue-neutral.
This story was originally posted at 1:43 p.m. and last updated at 8:34 p.m.