By Alexander Bolton - 11/15/11 10:15 AM EST
Republicans are beginning to wobble from their categorical opposition to raising taxes, opening the possibility of a deficit-reduction deal by the beginning of next week.
A dramatic sign of the GOP’s willingness to move came on Monday from Sen. Tom Coburn (Okla.), one of the most conservative Republicans in the chamber when it comes to fiscal issues.
Coburn said multimillionaires were receiving government welfare in the form of tax breaks for yachts and second homes.
The first significant crack came when GOP members of the deficit-reduction supercommittee offered to raise $300 billion in new net tax revenues while lowering tax rates, a shift from when Republicans said they could agree to no new tax revenues.
Coburn’s argument and the GOP supercommittee proposal reflect a common concern among Republicans, who are worried they will lose leverage in the deficit talks as the Bush tax rates near expiration in December 2012 .
Many Democrats feel the sunset of the Bush tax rates is their biggest leverage in the deficit talks.
Democrats can easily block the extension of low tax rates for the wealthy, capital gains and stock dividends, giving Republicans ample incentive to make significant concessions.
Republicans last week offered to eliminate special tax breaks in exchange for lowering marginal income tax rates.
Democrats think they can get the GOP to make the same concession next year to keep rates where they are now.
A senior GOP aide acknowledged that Republicans are shifting their position, but cast it as the only way to get a deal with Democrats, who otherwise refuse to cut entitlement spending.
“He offers revenues, which is a change from what Republicans have been willing to do in the past,” the GOP aide said of the offer crafted by Sen. Pat Toomey (R-Pa.), a member of the supercommittee. “It’s a major concession.
“It’s something offered as part of an overhaul of the tax system, which is something Democrats have demanded as the only way they would consider for making changes to mandatory spending obligations,” the aide said.
Grover Norquist, the president of Americans for Tax Reform, a conservative anti-tax group, said the GOP proposal is merely a negotiating position and that Republican leaders have assured him they won’t raise taxes.
“It’s not written down. It’s a negotiating position. It won’t pass the House or the Senate. I’ve talked to the House leadership and the Senate leadership. They’re not going to be passing any tax increases,” Norquist told The Hill on Monday.
Many Democrats criticized last week’s offer as insufficient, but Senate Democratic Whip Dick Durbin (Ill.) said it was a step in the right direction and could lead to a deal.
“The fact that some Republicans have stepped forward to talk about revenue, I think, is an invitation for Democrats to step forward and talk about entitlement reform as well as spending cuts. Therein lies the core of an agreement,” Durbin told reporters last week.
A GOP aide familiar with the details of the proposal said the revenue would come by eliminating deductions for taxpayers in the highest two brackets.
Coburn, the senior Republican on the Senate’s Permanent Subcommittee on Investigations, released a report Monday detailing special tax breaks for wealthy income earners that could give members of the supercommittee common ground for raising tax revenues.
The report found that millionaires enjoy about $30 billion worth of “tax giveaways” and federal grants every year — almost twice NASA’s budget, noted an aide to Coburn.
Coburn found that nearly 1,500 millionaires did not pay federal income tax in 2009.
Norquist chastised Coburn for targeting “legitimate business expenses,” such as rental expense deductions, in a report titled “Subsidies of the Rich and Famous.”
He said it “seems” as though Coburn is “trying to get on [President] Obama’s losing class-warfare argument.”
Millionaires claim a total of $28.5 billion in tax breaks each year, on average, according to Coburn’s report. Over 10 years, eliminating deductions for millionaires could achieve $285 billion in deficit reduction.
But Democrats argue this is not nearly enough to pay for the second half of the supercommittee Republicans’ deficit-reduction plan. The GOP offer would permanently lower the income tax rate for the top bracket from 35 percent to 28, and for all lower brackets by a proportional amount.
Democrats calculate Republicans would have to eliminate a staggering $3.5 trillion in tax deductions over the next decade to pay for lower marginal tax rates and still have $300 billion to reduce the deficit.
Democratic strategists and liberal-leaning policy experts say Democratic members of the supercommittee should not bargain away their biggest leverage in the debate: the impending expiration of the Bush tax cuts. The rate on the top tax bracket will revert to 39.6 percent at the end of next year, which many Democrats believe is an appropriate level for the wealthy.
James Horney, vice president for federal fiscal policy at the Center on Budget and Policy Priorities, a liberal-leaning think tank, said “it certainly doesn’t make sense to me to agree to a tax package that would set rates below what they are when the Bush tax rates expire.”
Democrats have proposed raising net tax revenues through tax reform in two stages. An early proposal called for raising $300 billion immediately and another $1 trillion through a comprehensive package next year. A plan floated last week would raise $350 billion in tax revenues this round and authorize tax reform to find an additional $550 billion next year.
But liberal activists and labor leaders are skeptical of that proposal. They doubt Republicans will follow through on pledges to raise net new tax revenues during an election year.
“It suggests Democrats are willing to cut entitlements now and take it on face value that Congress will raise revenue next year,” said a labor official. “It won’t be easier next year.”
Democratic strategists say the only acceptable possibility would be to make the enactment of entitlement cuts contingent on achieving the prescribed amount of new tax revenue through reform.