Washington Matters


Why Republicans Will Budge on Taxes

Richard Sammon

The debt deal will require the GOP to choose between small tax changes and massive military cuts. In the end, the defense hawks will rule.



Don’t be surprised if Republicans blink in the second round of the fight over the federal deficit, giving in to allow at least some tax revenue raisers despite their unanimous opposition to taxes in the first round.

SEE ALSO: The Good News on Social Security

There’s a simple reason: If the congressional “supercommittee” is going to save $1.5 trillion over the next 10 years, taxes and defense can’t both be spared. That will leave the GOP with some difficult, party-dividing choices in coming months.

If taxes are off the table, the 12-member panel charged with identifying the deep cuts and savings won’t strike a deal. That will trigger automatic cuts, including 50% that must come from defense programs. Neither party seems keen on getting to that point in the process.

Advertisement

So, like it or not -- and they don’t -- Republicans will have to swallow tax hikes of one kind or another, or revenue raisers that some of them view as tax hikes. The party’s defense hawks will make that happen.

Any tax change is likely to be small but symbolic in the thrust and parry before next year’s elections. There just isn’t time for a bigger fight over taxes, which is what it would take for a major shot at overhauling the tax system.

The agreement won’t be easy to come by. These talks will go down to the wire, just as the first step in the process did when lawmakers had to raise the nation’s debt ceiling to keep the U.S. from defaulting on its obligations.

This time, though, the supercommittee created by the debt ceiling deal adds a wrinkle to the process: Seven votes are needed to send a proposal to Congress, and with six members of each party on the panel, just one vote can break the stalemate. It doesn’t have to be a Republican who switches, of course. But it seems unlikely that any panel Democrat would agree to an attempt to take both taxes and defense off the table. That would require every dollar of prescribed cuts to come from domestic programs. Some Republicans will be wary of that approach, too, as election season approaches.

So look for a deal, rather than the automatic cuts. Even if the entire $1.5 trillion can’t be agreed to before the final deadline, the committee will send something to the House and Senate because every dollar of cuts the members agree to is one less dollar that has to be cut equally from domestic and military programs.

The negotiations will play out quickly, given the compressed timetable that Congress established when it agreed to the committee approach. The panel must hold its first meeting by Sept. 16 and has until Nov. 23 to report its recommendations. That leaves just one month for Congress to vote, but even then its role will be limited. In the normal process, regular committees have a chance to make major changes before sending a bill to the floor, and all lawmakers have a chance to vote on amendments. In this case, though, the usually powerful chairmen of standing committees will be limited to providing suggestions to the supercommittee, and lawmakers can vote only up or down on the entire package, with no chance for adding amendments to address anything they don’t like.

Congress also has to deal with the federal budget for the fiscal year that starts Oct. 1. Don’t look for a quick deal on that front, though. Instead, lawmakers are likely to use a series of continuing resolutions to fund programs at this year’s levels, at least until the debt panel finishes its work and determines which agencies will be subject to spending cuts under the 10-year plan.

There is a logjam of other legislation waiting to move. But the mood remains sour. Congress isn’t likely to get much else done this year.



Editor's Picks From Kiplinger


You can get valuable updates like Washington Matters from Kiplinger sent directly to your e-mail. Simply enter your e-mail address and click "sign up."

More Sponsored Links


DISCUSS

Permission to post your comment is assumed when you submit it. The name you provide will be used to identify your post, and NOT your e-mail address. We reserve the right to excerpt or edit any posted comments for clarity, appropriateness, civility, and relevance to the topic.
View our full privacy policy


Advertisement

Market Update

Advertisement

Featured Videos From Kiplinger