(Quick note from Taxgirl: Guest post by Brash Tax in response to the debt ceiling crisis and the Congressional fix. The post was submitted prior to any Super Committee nods or whispers.)
Lawmakers are drawing baselines in the sand even before the Super Committee is named. The distinctions among budget baselines are significant. But largely irrelevant.
Speaker Boehner makes the claim that Congress is bound by the CBO current law baseline that accounts for reality. The speaker and Republicans understand that, as it stands now, the Bush tax cuts expire at the end of 2012 and all individual tax rates go up in on January 1, 2013. Thus preventing the tax cuts from expiring for all but the wealthy adds to the deficit.
Consequently the Super Committee could not raise marginal tax rates on the top two percent in the name of deficit reduction under the current law baseline.
White House NEC Director Gene Sperling counters that the Super Committee can simply ask CBO to use “alternative baselines” to score the revenue effects of “revenue raising tax reform.” Obama would prefer an alternate reality that pretends the Bush tax cuts never expire. The Super Committee then can claim deficit reduction when the tax cuts expire (but only for the wealthy). Sperling goes on to explain that the Super Committee “can consider the kind of revenue raising tax reform that has broad and growing bipartisan support,” giving new meaning to alternative reality.
Look, even if there was this sort of broad and growing bipartisan revenue raising tax reform, it won’t to happen for a whole host of reasons. Not the least of which is time. A comprehensive tax reform bill can’t be written in four months, much less passed even if you had an agreement today. In 1985 it took the House Ways and Means Committee staff six months to draft the original House bill and they were working off the administration’s 300 page proposal.
The truth is the Obama administration doesn’t seriously expect the Super Committee to propose comprehensive tax reform. They could conceivably insist on using an alternative baseline to hike tax rates on the rich and count it as deficit reduction. But they won’t. And if you listen closely the White House isn’t concerned with alternative baselines. They know exactly where they’re going and it’s not raising tax rates on the wealthy.
Sperling rejects claims suggesting the Super Committee would be unable to increase taxes if they were required to use the traditional CBO baseline. He explains that they could eliminate tax benefits for oil companies or corporate jet owners or hedge fund managers. White House press secretary Jay Carney echoed this sentiment recently. But he went one very important step further. In listing tax hikes the Super Committee could propose, Carney added, “or if they decide to limit the value of itemized deductions for high-income earners as the President has called for, they can do that and they would raise revenue through doing that.”
The president’s budget proposal limits itemized deductions to 28 percent even if you currently pay taxes at a 35 percent marginal rate. The top marginal rate goes up to 39.6% when the Bush tax cuts expire. Using the CBO current law baseline the 28 percent limitation on itemized deductions would yield – you guessed it – more tax revenue and more deficit reduction. Nearly $300 billion. Add in $40 billion from oil and gas, $20 billion from hedge funds, $3 billion on corporate jets. All without touching the CBO baseline. Then there’s $309 billion in “Other Loophole Closers” in Obama’s budget and you’re soaking the rich to the tune of over $700 billion.
So while the debate over what budget baseline the Joint Super Committee will use the White House knows it will end up with Boehner’s baseline. Right where they want it.
Thanks to Brash Tax for his guest post. A seasoned tax policy vet, you can find him on twitter @BrashTax and you can read more of his thoughts on tax at his blog where he offers an informal discussion of the ins and outs of tax policy in Washington.
