House Republicans: No offsets for extending Bush-era tax rates

House Republicans say they have no plans to pay for the extension of the Bush-era tax rates, a move that could erase the deficit reduction they have achieved since winning their majority in the chamber in 2010.

The income and investment tax cuts enacted in 2001 and 2003 are set to expire at the end of the year and are at the center of a thicket of fiscal decisions that Congress must make in the next several months.

While President Obama and congressional Democrats want to extend only the Bush rates for middle-income earners, Republicans have long argued that the entire slate of tax rates should be kept in place until Congress can agree to a complete overhaul of the tax code. 

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But moving to extend the Bush tax rates without offsetting spending cuts or revenue increases could leave the GOP vulnerable to attacks on the deficit, particularly for a party that has spent years accusing Democrats of bankrupting federal coffers and used their House majority to insist on controlling the exploding debt.

It is Republican Party orthodoxy that tax cuts do not need to be offset because of the additional tax receipts they spur through economic growth. And in interviews, even House Republicans who have broken with the party leadership on taxes told The Hill they do not believe the extension of the Bush-era rates needs to be paid for.

The lawmakers also said that Republicans had always intended for the rates on income and capital gains, enacted during former President George W. Bush’s first term, to be permanent.

“From my perspective, you’re setting tax policy on a permanent basis, long-term basis,” said Rep. Tom Reed (N.Y.), a freshman Republican and member of the tax-writing Ways and Means Committee. “It’s not a pay-for situation. It’s just strong policy that needs to be adopted.”

Reed was among the 16 House Republicans to vote for a budget alternative modeled on the Simpson-Bowles deficit plan, which would increase tax revenue by about $1 trillion and assumed the expiration of the Bush rates for upper-income taxpayers.

A chief sponsor of that proposal in the House, Rep. Steven LaTourette (Ohio), is one of the only House Republicans to push for offsetting any extension of the Bush tax rates, and he told The Hill that calling for a vote on the Simpson-Bowles plan was a bid to demonstrate that. 

The Simpson-Bowles bill was overwhelmingly rejected, 38-382.

The political problem for Republicans comes from the system used by congressional score-keepers, which projects that extending the 2001 and 2003 cuts and other income tax provisions included in the 2010 tax deal would cost roughly $2.4 trillion over a decade. Republicans lawmakers have long expressed frustration with that system and want the Congressional Budget Office and the Joint Committee on Taxation to score tax proposals more dynamically — that is, more fully take into account economic growth.

The House passed legislation earlier this year, authored by Republican Policy Committee Chairman Tom Price (Ga.), mandating that CBO analyze economic growth on major bills. It stalled in the Senate, and the Obama administration remains strongly opposed to changing the scoring system.

Democrats’ proposal to extend all of the tax cuts except those for top earners would also add trillions of dollars to the deficit, but that has not stopped them from ripping the GOP’s plans. They have insisted that deficit reduction be achieved with a combination of spending cuts and tax increases on the wealthy.

“Adding to our nation’s debt in order to provide more tax breaks for millionaires and billionaires is a Republican specialty, and the middle class, seniors and working Americans always pay the price,” said Nadeam Elshami, a spokesman for House Minority Leader Nancy Pelosi (D-Calif.). “Democrats have offered a balanced approach to balance our deficit, create jobs and ensure that all Americans pay their fair share, and Republicans should join us in moving America forward.”

Republicans counter the Democratic attack by pointing out that Obama and the party’s congressional leadership agreed to extend all of the Bush-era rates in 2010 without offsetting spending cuts or tax increases. Some Republicans have even taken to referring to the policy as the “Bush-Obama tax cuts.”

“Those are rates that both President Bush and President Obama put in place,” said GOP Rep. Ann Marie Buerkle (N.Y.). “And when the Democrats had the opportunity to not extend the Bush tax rates, they declined, because they know in a fragile economy such as what we’re having right now, and the recovery being so fragile, it’s not a good idea to raise taxes.”

Buerkle voted for the budget modeled on Simpson-Bowles, but she said extending the Bush tax cuts should not be offset. 

Led by Speaker John Boehner (R-Ohio), House Republicans deviated from their position on paying for tax cuts when they pushed for offsetting the extension of the payroll tax break late last year. They eventually relented, and Boehner argued that the payroll tax was unique because it finances the Social Security trust fund.

“Failing to stop all the tax hikes will destroy more jobs and create more economic uncertainty for families and small businesses, and that’s why this Congress should work to ensure that no American’s taxes go up on Jan. 1, [2013],” Boehner spokesman Kevin Smith said. “We’re also going to continue working on tax reform, which is an important part of our jobs agenda.”

The question of paying for the Bush tax cuts is a complicated one for lawmakers, particularly because the outcome of the November elections will, to a large degree, shape the political environment they will face when considering the expiring tax provisions during a lame-duck session at the end of the year. At the same time, they will also have to decide whether to keep $1.2 trillion in scheduled spending cuts set to take effect beginning in 2013.

“I think it will be a question that we have to wrestle with,” freshman Rep. Robert Dold (R-Ill.) said of the deficit impact of the tax cuts. “But I think what it will also be is it could be part of a larger package, so we’ll have to take a look at what that package is going to look like.”

Economists have warned that the combination of a large tax increase and the spending cuts could significantly curtail economic growth if they take place simultaneously. That “fiscal cliff” could spur lawmakers to act on a deficit grand bargain that includes a far-reaching tax overhaul.