Republican senators eye loophole fix to avert mandatory Pentagon cuts

Six Republicans on the Senate Armed Services Committee have signaled they would consider using revenue from closing tax loopholes to avert pending cuts to the military.

Sen. John McCain (Ariz.), the senior Republican on the Armed Services panel, and Sen. Lindsey Graham (R-S.C.) are discussing a deal to raise between $40 billion and $50 billion in new revenues. 

Four other Republican members of the Armed Services Committee say they would consider supporting such a deal, even though it would likely violate the Taxpayer Protection Pledge championed by anti-tax activist Grover Norquist. 

McCain and Graham are eyeing tax loopholes and fees identified by Sen. Pat Toomey (R-Pa.) during the negotiations of the so-called supercommittee and other deficit-reduction talks last year. 

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“If Republicans would put some revenue on the table — it’s $110 billion we have to offset in 2013,” Graham said Tuesday. “So McCain and I are trying to find some revenue from the Toomey-supercommittee-Gang of Six-Biden-Kyl talks where we could put revenue [on the table] by closing deductions or selling property, increasing fees.”

Graham proposed a 3-to-1 ratio of spending cuts to revenue-raising provisions, similar to the Simpson-Bowles deficit-reduction plan.

The Pentagon is facing $55 billion in cuts, but any proposal to avoid them would need to erase a similar amount in cuts planned for non-defense programs to win Democratic support. 

Graham said if Republicans agree to raise $40 billion or $50 billion in new revenues, “it’s going to be easier to get Democrats’ help with the $60 billion or $70 billion that we’ll have to find throughout the other parts of the government.” 

Sens. Kelly Ayotte (R-N.H.), Susan Collins (R-Maine), Rob Portman (R-Ohio) and Roger Wicker (R-Miss.), all members of the Armed Services Committee, said they would consider such a compromise.

“I would support looking at some of the revenue sources that were looked at on the supercommittee. I think the overwhelming majority should be spending reductions, but that’s certainly something I would be willing to consider, depending on what the loopholes were and what the revenue sources were,” Ayotte said.

Ayotte said she would oppose any proposal that raised tax rates. 

Said Collins, “Whether or not I could support it would depend very much on the specifics, but I am very eager to avoid sequestration, which I think would be an absolute disaster for our economy as well as for our national defense and for many of the smaller discretionary domestic programs that would be hit hard.”

Portman, a leading candidate to join Mitt Romney on the GOP presidential ticket, said, “We’re willing to look at anything, we’re concerned enough about it.”

Portman, a member of the 2011 supercommittee, said Republicans in those negotiations were looking more closely at measures classified by the Congressional Budget Office as fees. 

“There are a number of items that CBO terms revenues, which are fees, that were part of the discussion,” he said. “But those wouldn’t be as much [tax] loopholes as fees.” 

When asked whether he could support ending some niche tax breaks to avert the sequestration, Wicker said, “I wouldn’t rule it out.”

Other Republicans on the Armed Services Committee have taken a different stance.

Sen. John Cornyn (R-Texas) said special tax breaks should be reviewed as part of broader tax reform, a position shared by House Ways and Means Committee Chairman Dave Camp (R-Mich.) and Norquist. 

“This is totally unnecessary to solve the sequester problem at least for a year, to start raising taxes on anybody,” Cornyn said. 

Sen. Jeff Sessions (Ala.), the third-ranking Republican on Armed Services, said closing tax loopholes is tantamount to raising taxes.

“I don’t think we need to be raising taxes for more spending,” he said. “I don’t think we have to raise taxes, period, to get this country under financial control. 

“I’m not supportive of this. I don’t think the Democrats have that much leverage to say they’re prepared to cut all this out of defense but Medicaid, food stamps, a lot of other programs have no cuts at all,” he said.

Sen. Saxby Chambliss (R-Ga.) said lawmakers should eliminate special tax breaks through comprehensive reform, not one at a time. 

When asked about McCain’s efforts to strike a deal on defense cuts, Senate Republican Leader Mitch McConnell (Ky.) deferred to his second-in-command, Senate Republican Whip Jon Kyl (Ariz.).

“The House of Representatives passed legislation, raised over $300-and-some billion to demonstrate it can be done without raising taxes,” he said. “Clearly, we believe that the best way to avoid the sequestration is to do so with reductions in spending, not raising taxes.”

Kyl noted that he and McCain have also introduced legislation that would use spending cuts to offset the cost of wiping out the defense sequestration.