Tax Analysts Blog

Fast Track to Nowhere

Posted on May 6, 2013

Although the formal expiration of the debt limit is May 19, the ability of the Treasury Department to juggle some internal accounts is likely to extend the effective deadline until late summer. Nothing is certain, but the real deadline is likely to crop up in September or even October.

This sets the stage for an ugly debt limit debate that may not be resolved for another five months. Our last debt limit debate in 2011 also went on for months. We ended up with $1 trillion in spending cuts and a “super committee” that failed. The failure of the super committee triggered a $1.2 trillion sequester that we are experiencing right now.

Now the question is what do Republicans want for their acquiescence on extending the debt limit. Some want spending cuts and entitlement reform, but apparently most Republicans do not want to continue to take the heat on cutting social security and Medicare. So, now it seems that they will instead push to include tax reform in the debt limit negotiations. (See here, here, and here.) This does not mean they will actually enact a tax reform but that they will set in motion some sort of fast-track process to spur tax reform forward.

Democrats oppose this. The stated reason is that as a procedural matter they do not want any conditions put on extending the debt limit. The real reason is that politically saleable revenue-raisers of significant magnitude are extremely hard to find and Democrats do not want any revenue raisers that Congress may develop to be used for rate reduction. They want loophole closing and base broadening to be used for deficit reduction, as in the Senate budget.

But still in the end Democrats could go along with fast tracking tax reform because ultimately it would not be a real concession. A fast-tracked tax reform would almost certainly fail. Putting tax reform on a fast track does not make it easier, it makes it harder . . . and tax reform is already hard enough.

Tax reform—whether on a fast track or not—cannot succeed until two enormous political hurdles are overcome. First, the two parties must find a middle ground between the Republican position of absolutely no tax increases and the Democratic position of tax increases of about $1 trillion over ten years. Second, somebody has to come up with a set of tax increases that would raise the enormous sums necessary for significant rate reduction and that could win the approval of the president and both houses of Congress. Nothing like this is on the horizon.

Read Comments (1)

amt buffMay 6, 2013

The sequester taught us all that the ostensible fallback plan is actually the
primary plan. We need to inspect any bill for consequences of failure to meet
the ostensible goals. Those consequences are the only sure thing in the bill.

In the case of immigration reform, the consequence of failure to halt illegal
immigration is creation of a study committee, not construction of barriers or
denial of green cards.

The immigration bill is an example of what we can expect to see in the debt
limit extension bill. When the issue is tough, the only way to play it both
ways is to create sham consequences for failure.

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