GOP plan to tie tax reform to nation’s debt ceiling stirs Democratic tensions

A new GOP effort to pass tax reform by tying it to the next increase in the nation’s debt ceiling could split Democrats on Capitol Hill.

On Tuesday, the House Democratic point men on taxes and the budget came out against the idea of connecting the two issues, but the Senate’s top tax-writer, Finance Committee Chairman Max Baucus (D-Mont.), may go along.

Rep. Chris Van Hollen (D-Md.), the ranking member of the House Budget Committee, was adamant that there should be no linkage.

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“The president has been very clear. There is no negotiating over whether or not the United States pays its bills or not,” Van Hollen said Tuesday.

House Ways and Means Committee ranking member Sandy Levin (D-Mich.) concurred.

“Tax reform must stand on its own feet,” Levin said.

In contrast, Baucus is signaling a willingness to at least entertain the idea of binding the two issues together. He has limited time to accomplish his top goal of tax reform because he is retiring at the end of his term in 2014.

“Sen. Baucus is in favor of reforming the nation’s tax code in an effort to boost the economy and create more jobs. He is interested in real solutions and open to discussing all ideas that will move the ball forward,” a Senate Finance Committee aide said.

The aide said Baucus would “need to see the details of any proposal before coming down either way” on a combined debt-ceiling and tax reform bill. Baucus wants to use some revenue from tax reform to lower budget deficits.

Baucus enjoys a close working relationship with House Ways and Means Committee Chairman Dave Camp (R-Mich.), who is exploring linking the two subjects.

The $16.7 trillion debt ceiling will likely need to be raised by October, according to the latest projections from budget analysts. Congress suspended the borrowing limit earlier this year, but it will come back into effect on May 19.

So far, Speaker John Boehner (R-Ohio) has not said what the price will be for raising the debt ceiling. In 2011 he insisted on dollar-for-dollar cuts to future spending, and when President Obama refused, a crisis ensued.

After a standoff that rattled equity markets and added to U.S. borrowing costs, both sides agreed to a complex supercommittee proposal that ultimately failed and led to the indiscriminate sequester spending cuts that are now in effect.

In January, the debt ceiling was suspended temporarily once Democrats agreed to “No Budget, No Pay” legislation that would have withheld lawmaker salaries if the House and Senate had not each passed a budget.

The Senate subsequently passed a budget for the first time in four years, but so far there has been no conference to reconcile it with the House version.

Now Boehner and other House leaders are trying to figure out what their “ask” will be on the debt ceiling.

At a meeting last Thursday, Camp and rank-and-file members discussed whether the solution should be to tie a measure fast-tracking tax reform to a must-pass increase in the debt limit.

Rather than a full tax reform bill, the measure would likely set out a timeline for completing the first major overhaul of the complex tax code since 1986, a GOP aide said.

Not all the details are yet clear, however. The GOP might insist that the tax reform bill not raise any revenue for deficit reduction; or additional spending cuts could have to be included in order to win over the party’s more conservative members.

Camp’s position is that all new revenue gleaned through closing loopholes should be used to lower tax rates. But he has not yet said that this will amount to a de facto price tag for raising the debt ceiling.

“Some people talk about air-dropping in a full tax reform into the debt ceiling, [but] the more likely thing is that you would agree to procedures,” a GOP aide said. “The chairman believes in revenue-neutral tax reform. He is not changing his position.”

The aide said the House will take the threat of a bond default off the table by passing a bill in May to prioritize debt payments in the event the debt ceiling is reached.

However, Van Hollen was clear he wants the debt ceiling to stay separate from other matters. He dismissed debt prioritization.

“I am very nervous that despite what I think are the Speaker’s good intentions to avoid a showdown, he can’t see his way to putting on the table a decent way out now,” Van Hollen said at a Bloomberg Businessweek event. “So the clock ticks.”

Senate Budget Committee Chairman Patty Murray (D-Wash.) also opposes tying the debt ceiling to tax reform.

“She doesn’t think the full faith and credit of the United States should be used as a bargaining chip in a political game,” an aide said.

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