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Wednesday, August 3, 2011

Can the Super Committee Raise Taxes or Not?

The celebrated Joint Select Committee on Deficit Reduction created by the debt-ceiling bill that pass this week hasn’t even been named yet. But it isn’t off to a very reassuring start.

The White House says nothing in the law prevents the committee from raising taxes, and Republican leaders say the details of the law block Democrats from counting an expiration of the Bush tax cuts for upper-income Americans towards the deficit-reduction goal.

It’s a reminder that the bipartisan push to pass the legislation before the Treasury ran out of cash didn’t settle the big differences Republicans and Democrats, particularly on taxes.

The Budget Control Act says: “The goal of the joint committee shall be to reduce the deficit by at least $1.5 trillion over the period of fiscal years 2012 to 2021.” It also says that the Congressional Budget Office shall provide estimates of the impact of the committee’s proposal s that are based on current law, and, under current law, all the Bush tax cuts expire at the end of 2012.

Rep. Paul Ryan (R., Wis.), chairman of the House Budget Committee, says that means that allowing those tax cuts to expire for upper-income taxpayers — also known as raising their tax rates — wouldn’t raise any revenue towards the $1.5-trillion goal. “Letting tax rates expire (i.e. imposing massive tax hikes on American families and job creators) would not achieve any ‘savings” for this Joint Committee, and there’s no reason the Committee would focus its attention on this futile effort,” he says.

But Gene Sperling, the president’s economic-policy coordinator, says, “The Joint Committee is tasked with deficit reduction, and the Committee can reduce the deficit by cutting spending and getting rid of tax loopholes and expenditures. Everything is on the table, as it should be.”

Mr. Sperling’s boss, of course, wants to let the income-tax cuts expire for those making more than $250,000 a year. It’s clear that the CBO will measure the committee’s proposals against a baseline that assumes current law – that is, that assumes all the Bush tax cuts expire. That’s what it always does. But it also will measure the proposals against other baselines, especially if someone on the committee asks it to do so. That’s what it always does. Mr. Ryan, for instance, asked CBO to score his plan against “an alternative fiscal scenario” that assumed the tax cuts were made permanent. And CBO’s regular deficit updates offer estimates with more than one yardstick.

Mr. Sperling’s reading of the law is that it calls “for deficit reduction – not simply spending cuts – and doesn’t anywhere require the Committee to work off a current-law baseline.” Mr. Ryan’s reading is that it does so require.

Proliferating yardsticks are an annoyance, and make budget debates hard for outsiders to follow. But sometimes, they’re political convenient.

A recent proposal by the Gang of Six, a bipartisan group of senators, was described by some advocates as a tax cut and by others as a tax increase; each used a baseline suited to its interests. Mr. Obama has been using a baseline that assumes the Bush tax cuts are made permanent, but only for the under $250,000 crowd; the Bowles-Simpson deficit-reduction commission used a similar yardstick to measure its deficit-reduction plan.

On his blog, Keith Hennessey, who held Mr. Sperling’s post at the end of the Bush administration, argues that the law would give the committee no credit towards its goal for raising income-tax rates on upper-income taxpayers (because that’s assumed in the baseline), but would give it full credit by accomplishing pretty much the same thing by eliminating those same taxpayers use of deductions and credits.

But at the Center of Budget and Policy Priorities, a left-leaning advocacy group, James Horney, who previously was a CBO staffer and a Senate Democratic budget aide, reads the law as Mr. Sperling does. “Nothing in the debt limit legislation requires the use of a current-law baseline to determine how much the Joint Committee proposal reduces the deficit,” he says on the Center’s website.

A close reading of the Budget Control Act by neutral budget analysts suggests that a majority of the 12-member Joint Committee has wiggle room if it wants some. The law doesn’t explicit define how the $1.5-trillion is to be measured. Although it says that CBO shall provide estimates measured against the current-law baseline, it doesn’t require CBO or the Committee to use that baseline as the sole way to describe the committee’s proposal.

In the end, if a majority of the committee wants to advocate higher taxes – and that is one big “if” – it will find a way to do so. And if the six Republicans on the panel insist on relying exclusively on spending cuts, then the committee won’t be able to recommend tax increases of any sort.

That’s Washington for you.

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