The GOP Tries for a Previous Tax Compromise

By Joseph Lawler

Yesterday Speaker of the House John Boehner laid out his approach for the coming fiscal cliff showdown between Congressional Republicans and the White House. He pushed back against President Obama's calls for a "balanced approach" to deficit reduction -- meaning one that includes tax hikes on higher incomes. But he also expressed an openness to new tax revenues, in words that were doubtlessly chosen for their ambiguity.

“The president has signaled a willingness to do tax reform with lower rates,” he said. “Republicans have signaled a willingness to accept new revenue if it comes from growth and reform.”

The phrase “growth and reform” is one that could be infinitely parsed, and gives Boehner cover to proceed in negotiations with the administration while avoiding outrage from both sides for the present.

Republicans’ baseline stance is that taxes shouldn’t be raised and that any revenue raised by cutting tax credits or deductions should be offset by rate reductions. Revenues raised as a result of increased economic growth, however, are welcomed.

The meaning of the phrase “growth and reform” is cloudy enough to allay suspicions that Boehner is open to compromising on the GOP’s no-new-taxes stance, while also indicating that he’s open to a deal with Obama. It could mean that all the new revenues would come from supply-side effects that boosted the economy, or that they would be static increases resulting from reducing tax expenditures – or some mix of the two.

In fact, it sounds as though Boehner is trying to bring the discussion to where it was in July of 2011, when the debt ceiling negotiations almost resulted in the “Grand Bargain” that both sides claimed to be seeking. Both Republican and Democratic sources agree that Obama and Boehner had a deal all but hammered out before it failed – a deal that included $800 billion in new revenues. There’s disagreement, though, about whether that new revenue would come from growth or reform. Washington Post reporters Peter Wallsten, Lori Montgomery and Scott Wilson had the clearest explanation of what was in the deal that was almost struck:

In Boehner’s offer Friday night, the taxes came with strings attached. The Republicans wanted Obama to give up plans to raise the tax rate paid by the wealthiest Americans, now set at 35 percent. Instead, they wanted that rate to go down…

Another key caveat: Much of the $800 billion would have to come from overhauling the tax code — not from higher tax rates. The Republicans believed lower rates and a simpler code would generate new revenue by discouraging cheating and spurring economic growth…

That last condition was a problem. For years, Democrats have mocked the Republican argument that tax cuts pay for themselves by boosting the economy, an assertion for which evidence is scant…

So there were issues to work out that Sunday but also reason for optimism. In its counterproposal, the White House appeared to accept the $800 billion tax offer and a lower top rate. The administration rejected the exemption for overseas profits, but Geithner told the Republicans, they said, that he could get most of the way there.

And when Boehner brought up economic growth, arguing that his caucus would not accept tax increases under any other terms, the Republicans saw Geithner as receptive, Jackson said. “It was literally one of the last things discussed when they came in on that Sunday. And Geithner said, ‘Yes, we accept that,’ ” Jackson recalled. “We viewed it as a breakthrough.”

On this point, the two sides are in dispute. Geithner and other administration officials say it never happened. They strenuously deny agreeing to count revenue from economic growth, a process known as “dynamic scoring.”

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Whatever the case, by the time Obama returned to the room with Boehner and Cantor after their half-hour Oval Office chat, the focus was on defending their compromise more than debating it.

That was the closest that the two sides ever came to a deal, and Boehner’s recent comments suggest that he’d like to pick up right there. Perhaps he might have wanted a different framework for a compromise if Republicans had gained the House or the Senate, but given that the players remained the same after the election, it might seem like a reasonable place to start.

Of course, as Boehner is fully aware, the division of power on the Hill might be the same, but Obama’s holding more cards now than he did last time around. The most important advantage in Obama’s favor is that the 2001-2003 tax cuts are scheduled to expire if nothing happens, and that Obama won’t face any electoral consequences for raising taxes until 2016.

So Boehner’s attempting to get back to the deal that was on the table in 2011. Senate Minority Leader Mitch McConnell is also souding notes favorable to a compromise. The 2011 grand bargain is an attractive one for the GOP now, even if President Obama has other ideas.

Joseph Lawler is editor of RealClearPolicy. He can be reached by email or on twitter.

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