Republicans weigh deal on tax increase

STRATEGY::Passing legislation now to extend tax cuts may have political advantages for Republicans by denying Obama the additional spending on infrastructure he seeks

Bloomberg

Fri, Dec 07, 2012 - Page 7

US House Speaker John Boehner is under pressure to defy Republican Party orthodoxy on income taxes to rein in the US deficit, with an increasing number of his rank-and-file members saying they are willing to discuss raising rates for top earners.

A few dozen Republicans have joined a bipartisan call to consider “all options” on taxes and entitlement programs, signaling they are ready to bargain on US President Barack Obama’s main condition for a budget deal this month: a tax rate increase for the top 2 percent of US earners.

Obama and Boehner spoke by telephone on Wednesday, said Boehner spokesman Michael Steel, after offering their proposals in the past week to cut the deficit, which has topped US$1 trillion in each of Obama’s four years in office.

More than US$600 billion in tax increases and federal spending cuts will start taking effect in January unless Congress acts.

“We’re at a fork in the road,” said former New Hampshire Senator Judd Gregg, a Republican.

Obama and Boehner need to realize “they have to get in a room and work out a deal,” he said, or positions will “start to harden and both sides to some degree are going to be willing to accept going over the cliff.”

Boehner proposed a US$2.2 trillion plan this week that would raise revenue by curbing tax breaks. He insists he will not agree to higher tax rates at any income level.

While Obama opposes Republicans’ approach to generating revenue solely by limiting tax breaks, his budget proposal in February included more than US$750 billion in revenue from top earners by curtailing tax breaks. His new deficit-cutting plan would raise US$1.6 trillion in tax revenue over the next decade.

US Treasury Secretary Timothy Geithner said in an interview on CNBC on Wednesday that the administration “absolutely” is willing to go over the so-called fiscal cliff of tax increases and spending cuts if Republicans do not agree to raise tax rates on the highest-income earners.

Boehner’s once-unified coalition against income tax rate increases is showing signs of fracture. A Republican leader of the petition to consider all revenue options, Representative Mike Simpson of Idaho, said he could accept higher tax rates for married couples earning more than US$500,000 a year, in exchange for an overhaul of spending in entitlement programs.

Separately, more House Republicans began to endorse Oklahoma Republican Tom Cole’s call to extend all tax cuts for middle-class earners, as Obama has asked Congress to do by the end of the year. Representative Kay Granger of Texas called it “just the right thing to do.”

Florida Representative Dennis Ross, a freshman Republican, said he would not rule out voting for Senate-passed legislation to extend only the middle-class tax cuts.

Passing legislation now to extend middle-class tax cuts and delaying the debate over a broader deficit-cutting plan into this year may have political advantages for Republicans. It would deny Obama the additional spending on infrastructure and a payroll tax-cut extension he is seeking.

It would also delay the deficit debate until the US needs to raise the US$16.4 trillion debt limit early next year. The debt-ceiling deadline provided Republicans with leverage over Democrats during the budget talks next year.

A trade-off of higher taxes for entitlement spending cuts would require Boehner, an Ohio Republican, to persuade more than 100 of his majority party members to join House Democrats in passing a deal.

Representative Steve LaTou-rette of Ohio said Boehner could gather the 218 votes needed to send a tax increase to the Democratic-majority Senate if about 120 House Democrats “buy in” on changes to entitlement programs, such as raising the eligibility age for Medicare or adjusting the annual Social Security cost-of-living formula.

Aides to Boehner and House Majority Leader Eric Cantor of Virginia are playing down the number of Republicans willing to defect on tax rates. Publicly, the speaker has given no indication he willl change his position.

Last week, Cole was the first high-profile Republican to say his party should lock in the George W. Bush-era income tax cuts for 98 percent of Americans by the end of the year and allow them to expire for the top 2 percent of earners. Other Republicans began nodding in agreement.

A potential tax compromise may include raising Obama’s US$250,000 annual income threshold to US$500,000 or US$1 million, or raising rates for top earners short of the 39.6 percent level during President Bill Clinton’s administration, Simpson said.

That could be combined with ending or capping some deductions and credits that has support in both parties, he said.

Democrats would need to respond by agreeing to cuts in entitlement programs. Options include an increase in the Medicare eligibility age, changing the way Social Security cost-of-living payments are calculated and trimming benefits or increasing co-payments for wealthier recipients.