House Minority Leader Nancy Pelosi reiterated Democrats’ hope that sequester cuts would be replaced with revenues raised from eliminating tax expenditures. Senate Democrats passed a budget resolution in the spring that called for $1 trillion in new revenues over the next 10 years. This is nothing new. Democrats have repeatedly called for higher taxes, sometimes cloaking their position by using euphemisms such as “closing loopholes” or “cutting wasteful subsidies.” Whatever the term being used, the end result is higher taxes and higher government spending (the natural outcome of any plan to replace sequester cuts with revenues).
Republicans, predictably, aren’t open to that kind of compromise. House Majority Leader Eric Cantor has said Republicans won’t give up sequester cuts in spending for higher taxes. Rep. Tom Cole, who is on the conference committee, agreed, asking, “What Republican would go home [and say], ‘I voted to raise taxes to spend more money’?” Cole did suggest that new revenues could be on the table, but not from taxes. He said the GOP would be open to more energy exploitation and production and bringing stranded profits home (a veiled hint at another repatriation holiday, which would raise revenue in the short term while lowering taxes in the long run). Neither of those options are the kinds of revenue that are acceptable to Democrats.
And what of tax reform? Aren’t the “loopholes” that Pelosi is targeting supposed to be reserved to pay for a reduction in the corporate tax rate or other sweeteners in a broad-based reform package? Certainly that was the hope of House Ways and Means Chair Dave Camp and Senate Finance Committee Chair Max Baucus. The fact that Democratic conferees want to use tax expenditures to replace the sequester bodes ill for their prospective support of any bill from either Camp or Baucus. It has long been clear that Baucus enjoyed only tepid support for his reform efforts from Senate leadership and the new focus on repealing the sequester is confirmation of that.
Tax reform was always going to depend on a spirit of bipartisanship that hasn’t existed in Washington in years. Every time momentum seems to pick up, a major crisis (like the shutdown and debt ceiling this month) drives the parties further apart. Lobbyists are becoming increasingly skeptical that any markup will occur this year, and the longer the process drags out, the more likely it is to come to nothing.
The budget conferees aren’t supposed to be focusing on tax reform, of course. They are trying to avert a breach of the debt ceiling and find a way to fund government for the rest of fiscal 2014. But taxes are a major part of the divide that brought us to this point in the first place. Democrats and Republicans simply do not agree on the proper level of revenue needed to fund the federal government. And they aren’t likely to agree by December 13 or even January 15. That makes a grand compromise impossible before voters send a clearer signal of their wishes in either 2014 or 2016. Until that happens, it would be nice if leaders in Washington would drop impossible demands (like eliminating the sequester in favor of higher taxes or scrapping Obamacare) and limit the number of fiscal crises faced each year. Is that really asking so much?