I wrote the other day that the Republican budget offer is not really a concession to increase revenue, but a hedge against the possible expiration of the Bush tax cuts. If you want more evidence, consider the Democrats’ latest offer. It reduces spending by more than twice as much as it increases revenue, and all the revenue comes through closing loopholes, not raising rates, as conservatives prefer. But Republicans oppose the offer because it fails to rule out future revenue increases.
To try to secure an agreement, Democrats on the Joint Committee offered a plan that moved significantly toward the Republicans and a considerable way beyond the bipartisan Bowles-Simpson and Gang of Six plans, which conservative senators like Tom Coburn and Mike Crapo had embraced. Yet Republicans have summarily rejected the latest, rather conservative Democratic offer. Why?
The answer lies primarily in the principal difference between the Toomey plan and the Democratic offer: The Toomey plan would permanently place tax rates below those set by the 2001 and 2003 tax cuts, effectively locking in the Bush tax cuts for high-income taxpayers (as well as other taxpayers) and taking them off the table for future deficit reduction. In addition, by requiring several trillion dollars in tax-expenditure savings in order to pay for these reduced tax rates, the Toomey plan would use up most or all of the achievable tax expenditure savings and effectively take tax expenditures off the table for future deficit reduction, as well.
By contrast, the Democratic offer would set the Bush tax cuts to the side, neither extending nor ending them and leaving their disposition for another day. And, by securing $400 billion from tax expenditures now rather than several trillion dollars as the Toomey plan would require, it would allow future Congresses to consider further savings in the future rounds of deficit reduction that our fiscal situation will necessitate.