Are Republicans caving on tax hikes? The short answer is no. But the more nuanced answer is that there’s been some significant movement.
No one has been talking about tax hikes per se. Allowing George W. Bush’s 2001 tax cuts to expire simply returns taxation to previous levels, and no one, Republican or Democrat, has proposed going above those Clinton-era rates. But for nearly a year, very few Republicans have been willing to allow for increased revenues of any kind above current rates.*
Part of their recalcitrance stemmed from a tax pledge most Republicans have signed with Grover Norquist’s Americans for Tax Reform pledging not one more cent for the U.S. Treasury. That said, Norquist seemed to give his tacit blessing to the new GOP plan put forth this week by Pennsylvania Republican Senator Pat Toomey, a former head of the anti-tax group Club for Growth. Toomey’s plan would bring in upwards of $300 billion in new revenue by limiting tax deductions things like mortgages for second homes. All told, the proposal would bring in as much as $640 billion in new revenue when you include increased fees, asset sales, higher Medicare premiums for wealthy seniors and factor inflation, which would push more people into higher tax brackets.
If Republicans vote for this deal, it would represent the first time the GOP has supported new revenue since George H. W. Bush’s new taxes in 1990. Ironically, those came in the same back door package of limited deductions, and many Republicans were quick to note that it was the breaking of his pledge, “No new taxes,” that effectively killed his reelection bid. In other words, this is a big deal for them.
That said, Democrats were quick to point out that the concessions Republicans demanded in return were steep. Toomey proposed reducing the top income tax rate from 35% to 28% and making permanent all of the Bush tax cuts, a move that would cost more than $4 trillion over a decade, more than offsetting the new revenues .(The fact that the revenues would be offset satiated Norquist’s criteria). Dems were also outraged at some of the revenue Toomey assumed, such as opening the Arctic National Wildlife Preserve to oil and gas drilling. “This is the largest percentage tax cut for multi-millionaires since Calvin Coolidge was in the White House and is a giveaway to Big Oil and every other industry on earth,” said a senior Democratic aide close to the process. “In short, not a constructive effort to negotiate in the least. It’s time to get to get serious and start working toward real solutions.”
So, while Toomey’s move represents the first real progress on deficit reduction in months, it has not brought either side any closer to a deal. Democrats, cynical about GOP motives say that Republicans are finally just realizing they’re on the wrong end of polling by pursuing a cuts-only strategy. Republicans say this is proof that Democratic criticisms that congressional Republicans do nothing but stonewall are hogwash. But political benefits of the move aside, the reality is that with two weeks to go until the supercommittee’s deadline, deadlock looks as likely as ever.
*UPDATED: A friend writes to remind me that I’ve neglected to mention the Buffett Rule. So there are actually people suggesting higher rates above 2001 levels for the rich.