Big debt deal threatens to split Republicans over tax reform

Big debt deal threatens to split Republicans over tax reform

Republicans on Friday grappled with the possibility that broad changes to the tax code could accompany a grand bargain to raise the debt limit and reduce the deficit.

With House Speaker John BoehnerJohn Andrew BoehnerDemocrats eager to fill power vacuum after Pelosi exit Stopping the next insurrection Biden, lawmakers mourn Harry Reid MORE’s encouragement, President Obama is pushing for congressional leaders to strike a far-reaching agreement to reduce the deficit by more than $4 trillion over 10 to 12 years, which would include more than $1 trillion in new revenues, officials said.

That goal appears to have cracked open a fissure between BoehnerJohn Andrew BoehnerDemocrats eager to fill power vacuum after Pelosi exit Stopping the next insurrection Biden, lawmakers mourn Harry Reid MORE and his top lieutenant, Majority Leader Eric CantorEric Ivan CantorRepublicans eager to take on Spanberger in Virginia Virginia emerging as ground zero in battle for House majority McAuliffe's loss exposes deepening Democratic rift MORE (R-Va.), who, along with Senate GOP whip Jon Kyl (Ariz.), voiced support in a Thursday meeting at the White House for pursuing a more modest $2.5 trillion deficit deal modeled on a blueprint hatched in talks led by Vice President Biden.

Cantor “said that the big deal as described by the president included $1.4 to $1.7 trillion in tax hikes and he doesn't support that and the House wouldn't support that,” an aide to the majority leader said.

Both Boehner and Cantor on Friday reiterated the GOP’s blanket opposition to tax increases in a debt deal, using the weak monthly jobs report to solidify their arguments. But what remains unclear is whether Republicans would define hundreds of billions of dollars in proposed added revenues as unacceptable tax hikes. Cantor supports a broad agreement in theory but remains skeptical that it can be achieved without tax increases.

In a brief interview Friday, Cantor told The Hill that he “is right where the Speaker is.”

“We want to make as much positive change to the fiscal outlook of this country as we possibly can without raising taxes,” Cantor said. “The Speaker’s in the same place I am.”

But while GOP officials have signaled a new openness to considering closing tax loopholes, the majority leader cast doubt that $1 trillion in new revenues would not be considered tax hikes, as defined by the non-partisan Congressional Budget Office.

“I’m not sure how you can even say if CBO defines new revenues as raising taxes how that’s not raising taxes,” Cantor said.

“The insistence that I have and have consistently said throughout the Biden talks and now is that we can’t and wont support any tax hikes.”

Boehner on Friday said that he had always wanted to strike what he described as “the big deal,” though he did not confirm the $4 trillion number. In a colloquy with Cantor on the House floor, Minority Whip Steny Hoyer (D-Md.), pointedly congratulated Boehner for embracing the idea of a “comprehensive” deal.

A Boehner spokesman, Michael Steel, said there was no daylight between him and Cantor but declined to expand on Boehner’s position in the White House meeting. Both men will be among the eight congressional leaders returning to the White House for a critical meeting on Sunday.

Around the Capitol, details of the proposals were scarce, but several House Republicans signaled an openness to considering a grand bargain that included major tax reform.

Rep. Pete Sessions (R-Tex.), the chairman of the National Republican Congressional Committee, said he favored a large deal and did not rule out supporting significant new revenues as part of it, so long as they were not tax increases. “There should not be a small or a medium answer” to a large problem,” Sessions said. “The bigger the package, the more we tackle,” he said.

Republicans were pressed on whether they would support the extension of George W. Bush-era tax cuts for the middle class without a corresponding extension for the wealthy. That proposal is one that has been floated in the talks, sources say, but it is unclear what other tax changes it would be combined with to achieve deficit reduction.

House Republicans have long considered the decoupling of the middle and upper income Bush tax rates as a back-door tax hike for the wealthy and small businesses. “That would be a tax increase, and it would not be wise,” Sessions said. “Republicans will not vote for a tax increase.”

Rep. Pat Tiberi (R-Ohio), who chairs the House Ways and Means subcommittee on Select Revenue Measures, said decoupling the high-end tax rates would be a problem because many businesses actually pay taxes on the individual code.

“I think the votes would not be there,” Tiberi told reporters.

Rep. Kevin BradyKevin Patrick BradyOn The Trail: Retirements offer window into House Democratic mood Members of Congress not running for reelection in 2022 Trump war with GOP seeps into midterms MORE (R-Texas), also a senior Ways and Means member, agreed, calling the idea a “non-starter.”

Both Tiberi and Brady are also strong supporters of overhauling the tax code, but were not sure just how quickly lawmakers could craft reform legislation if a timeline is included in any grand debt deal. The House Democrats who participated in the Biden talks, Reps. James Clyburn (S.C.) and Chris Van Hollen (Md.), have said comprehensive tax reform was not seriously discussed and that it could not be done in the weeks before Aug. 2. That raises the possibility that a tax portion of any agreement might not be finalized, necessitating follow-up action.

Rep. Dave Camp (R-Mich.), the Ways and Means chairman, has said in recent weeks that any time is a good time for tax reform.

But Camp has also taken a methodical look at the code in a string of hearings this year, and has approvingly cited statements from others who have suggested that tax reform should be a separate venture from the debt-ceiling negotiations. Sen. Orrin HatchOrrin Grant HatchMeet Washington's most ineffective senator: Joe Manchin Lobbying world Congress, stop holding 'Dreamers' hostage MORE (R-Utah), the ranking member of the Senate Finance Committee, has made comments to that effect as well.

Tiberi said he believed Ways and Means could ramp up quickly, but also signaled that President Obama needs to more clearly spell out his goals on the revenue side.

The Ohio Republican indicated that the Obama administration – which has stressed the importance of overhauling the corporate tax code – may be trying to have it both ways by calling for certain corporate loopholes to be scrapped in the name of deficit reduction.

“If you take the president at his word that he wants to reduce the corporate rate, how do you do that without closing the loopholes to pay for it?” he asked.

For his part, Brady said it would be difficult to revamp the code by the end of the year as some have suggested, noting there would be a “fierce lobbying effort on whatever deductions and credits and incentives are eliminated.”

“That’d be pretty ambitious,” Brady said. “The good news is they are working with Camp on it.”

On the other side of the aisle, Rep. Sandy Levin (D-Mich.) said he wasn’t sure it made sense to tie a revenue-neutral corporate tax reform plan to a deal intended to reduce deficits.

The Ways and Means ranking member also signaled that some provisions – such as the Bush era rates for the wealthy and the taxes paid on carried interest earned by hedge fund managers – should be eliminated to help roll back deficits and don’t need to be part of any tax overhaul discussions.

“If you’re going to think about $4 trillion, you have to touch high-income tax rates,” Levin, the Ways and Means ranking member, told The Hill. “Don’t lump everything into tax reform. That’s the key point.”