Top Senate Republicans leave door ajar for tax tradeoffs in debt deal

Two top Senate Republicans said Wednesday that including a scaled-down tax reform plan in any deal to roll back deficits would be difficult, but also did not slam the door on the idea.

Sen. John Thune of South Dakota was skeptical that there was 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.

“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.

The two senators were responding to comments from House Majority Leader Eric Cantor (R-Va.), who suggested he was open to talking about tax loopholes in a deficit deal that would allow the debt ceiling to be raised.

But Senate Minority Leader Mitch McConnell (R-Ky.) said any effort to “cherry pick” tax loopholes as part of the debt-ceiling talks would be “pretty challenging.”

For his part, Kyl, the minority whip, raised similar concerns.

"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?" Kyl said. "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.

The Arizona Republican 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.

"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 that any deal where loopholes were exchanged for a payroll tax deduction or other stimulative measures would have to be revenue-neutral.

“Could that open the door? Perhaps it could,” he said.

“I don’t think you can see anything pass up here that is perceived as an increase in taxes or an increase in revenue,” he added.

But Kyl also sounded open to a deal ending preferential tax treatment for ethanol, something he has voted for twice in recent weeks. 

"That's a matter of bad tax policy that I'm willing to do away with, no matter what the tax implications are," he said.

At the same time, Democrats said Republicans in general were missing the point in calling for any tax changes to be revenue-neutral, with Sen. Charles Schumer (D-N.Y.) saying that was like “taking one step forward and then two steps back.”

“The point isn’t to get rid of these loopholes simply to pay for new tax breaks elsewhere, it’s to do it in a way that contributes to the reduction of the debt,” Schumer, who leads Senate Democrats’ messaging efforts, said in a statement.

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