Tax Analysts Blog

Plan to Tie Tax Reform to Debt Ceiling Will Likely Fail

Posted on May 6, 2013
House Republicans don’t like the idea of raising the debt ceiling. Many would like to see steep spending cuts that would balance the government’s finances and prevent the need for further debt ceiling increases. Others view the debt ceiling as conservatives’ only leverage over President Obama and the Democratic Senate. But House Speaker John Boehner, R-Ohio, has been wounded by debt ceiling fights in the past, and he remains committed to finding a way to avoid default while possibly wringing some small concessions from Democrats. According to Politico, the latest scheme under discussion is to tie an increase in the debt ceiling with tax reform.

On the surface, the plan seems like a good idea. Both Obama and House Ways and Means Chair Dave Camp, R-Mich., are on record as supporting tax reform. The president has even been in touch with Camp, promising to crunch the numbers on the Ways and Means plan to lower tax rates to 25 percent, Politico writes. On the Senate side, retiring Finance Committee Chair Max Baucus, D-Mont., and Budget Committee Chair Patty Murray, D-Wash., have both signaled their support for taking up reform this year. Baucus, in fact, seems almost desperate to cap his career with bipartisan tax reform legislation. (Camp, like Baucus, is operating on something of a time limit – the Michigan Republican must give up the Ways and Means gavel in 2014, likely to Paul Ryan.)

But as everyone knows, the tax reform that Camp supports is very different from what Obama and Murray have in mind. And no one has any idea what kind of bill Baucus will produce (although it might be closer to what the GOP is seeking than Baucus’s Democratic colleagues would like). Camp might have a genuine desire to make the tax code fairer and more efficient, but he has to buy conservative support by promising to lower the top rate to 25 percent and making the package revenue neutral (or even including a tax cut). Democrats want tax reform to raise revenue, particularly from multinationals and the wealthy. There might be room in the middle, as Baucus hopes, but can an agreement really be reached by October, when default looms?

Republican taxwriters and lobbyists don’t think they necessarily have to meet an October deadline. The Politico story details a complicated proposal to tie short-term debt ceiling increases to incremental progress in tax reform. It’s another attempt to bind the future (like the sequester and the so-called supercommittee). That doesn’t work very well on Capitol Hill. Will Tea Party representatives support an actual increase in borrowing in exchange for an ephemeral promise for reform?

Boehner might not think so. The kicker in the Politico story is the news that Republican leaders (read: Boehner, because the so-called Young Guns have become increasingly irrelevant) don’t think the right wing of the party wants to have repeated votes on the debt ceiling, nor do they think revenue-neutral tax reform is the equivalent of offsetting spending cuts, which is what the GOP really wants. Boehner has been bitten too many times in the last three years when he brought bills to a vote without sufficient conservative support. He’s likely to be very gun-shy about Camp’s debt ceiling plan.

Obama has said he won’t negotiate over the debt ceiling. Democrats have consistently scored points on the issue. The business community has even criticized Republican attempts to use the threat of default to wring spending cuts out of the White House. The debt ceiling battle has smelled like a GOP loss for months – and it smacks of desperation whenever lawmakers promise to “win the next round.” Republicans need to understand that they won’t be able to use the debt ceiling to push their legislative agenda through Congress. And tying tax reform to the debt ceiling discussions will likely reduce the chances of reform happening in the short term, not increase them.

Read Comments (0)

Submit comment

Tax Analysts reserves the right to approve or reject any comments received here. Only comments of a substantive nature will be posted online.

By submitting this form, you accept our privacy policy.

* REQUIRED FIELD

All views expressed on these blogs are those of their individual authors and do not necessarily represent the views of Tax Analysts. Further, Tax Analysts makes no representation concerning the views expressed and does not guarantee the source, originality, accuracy, completeness or reliability of any statement, fact, information, data, finding, interpretation, or opinion presented. Tax Analysts particularly makes no representation concerning anything found on external links connected to this site.