Democrat: Letting Bush tax rates expire could stop sequestered cuts

He charged that if Republicans vote to extend all of the tax rates without changing sequestration, they would then be supporting keeping sequestration in place, because the revenues from the expiring tax rates could undo sequestration.

“The vote to extend the Bush tax cuts in their entirety would, in essence, be the vote to lock in sequestration,” Smith said at a roundtable with reporters. “That will be interesting.”

A House Republican aide said Smith’s idea that the Bush-era tax rates could stop sequestration was “disingenuous.” The aide said the deficit problem is not because of revenues, and that additional revenues wouldn’t necessarily mean additional money going toward defense.

Smith said offsetting sequestration with the tax increases would not be “an ideal solution.” But his candid comments Thursday on sequestration suggested that Democrats plan to push Republicans on raising revenues at the end of the year, and they see the $500 billion in cuts to both defense and non-defense spending through the sequester as an ace-in-the-hole.

Democrats have resisted plans from House Armed Services Committee Chairman Buck McKeon (R-Calif.) and Senate Republicans that would delay sequestration for one year. Smith said Thursday he did not expect House Democrats to create a plan of their own, though he added, “It probably is something I would think we should do.”

The reason the Bush-era tax rates and sequestration are interlinked is all about timing: The rates expire at the end of 2012, while sequestration goes into effect on Jan. 2, 2013.

Most lawmakers on both sides of the aisle don’t want to see sequestration, which is in place because the supercommittee failed, take effect. But their disagreement over how to find $1.2 trillion in deficit reduction has prevented any movement on the issue, and most don’t expect anything to change until after the election.

Democrats said Republicans are unwilling to raise taxes to deal with the deficit — and some have suggested sequestration is exactly what will change that. Republicans, meanwhile, have accused Democrats of being unwilling to deal with the entitlement side of the budget, accusing them of trying to balance the budget on the back of the Pentagon.

If Congress does nothing with the expiring Bush-era tax rates, the Congressional Budget Office has predicted an increase in revenues of more than $3 trillion. Democrats only want to end the tax rates for the rich, while Republicans don’t want them to expire for anyone — this is where the heart of the disagreement lies.

Congressional inaction alone would not end sequestration, however, despite the increases in revenue, said Russell Rumbaugh, co-director of the Budgeting for Foreign Affairs and Defense program at the Stimson Center.

Rumbaugh said sequestration is law because the supercommittee failed, so Congress would still have to pass a new law to turn it off.

President Obama has threatened to veto any bill that tries to undo the sequester without reaching $1.2 trillion in deficit reduction. His 2013 budget, which Republicans have said is not going anywhere in Congress, had the necessary deficit reduction in part because of new tax increases.

Smith said one reason Democrats aren’t announcing a plan of their own is because the only deficit-reduction plan that would actually pass has to be bipartisan.

“Chairman McKeon and I have talked about this,” Smith said. “Is there something we can come together and agree on?”