Taxes Are Sticking Point In Sequester Talks

1:07 AM, Mar 1, 2013   |    comments
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By Brian Tumulty
Gannett Washington Bureau

WASHINGTON - The deadlock over $85 billion in sequestration budget cuts largely comes down to a debate about taxes.
Republicans and Democrats agree that the cuts, which take effect Friday and will slash federal spending across the board through the end of fiscal 2013 on Sept. 30, could be handled more intelligently.

But they don't agree on whether new tax revenue should be part of the solution.

Congressional Democrats and President Barack Obama say it should. Republicans disagree. They say Obama already got a tax increase - as part of legislation to avoid the "fiscal cliff."

That legislation, enacted in January, allowed higher income tax rates to kick in for families earning more than $450,000 while renewing most of the Bush-era tax cuts. It also phased out many deductions for households earning more than $250,000.
The partisan divide over taxes was a factor Thursday when competing proposals for avoiding sequestration failed in the Senate.

Democrats offered a package that would have generated $54 billion in new revenue over 10 years by enacting the "Buffett Rule'' named after billionaire Warren Buffett. The legislation would have required individuals earning more than $2 million to pay a tax rate of 30 percent.

Democrat also proposed raising $2 billion by ending a policy that exempts tar sand and oil sand producers from paying into an oil spill liability trust fund. And they wanted to raise about $1 billion by ending tax breaks companies can claim when they spend money moving operations overseas.

The Senate Democrats' plan included targeted spending cuts and elimination of direct federal payments to farmers. The Senate vote on the plan was 51-49, short of the 60 votes needed for passage.

The Senate GOP proposal would have given Obama until March 15 to come up with an alternative plan for saving the same amount of money without the across-the-board cuts. That failed 38-62.

Senate Majority Leader Harry Reid, D-Nev., told reporters Thursday the showdown was the latest installment in a long-standing battle over spending and taxes.

"This isn't something that happened yesterday,'' Reid said. "We've been fighting this for a couple of years now."

The sequestration cuts were part of a 2011 deal to increase the nation's debt limit. They are projected to total $1.2 trillion through the end of fiscal 2021. This year's $85 billion in cuts is the first installment.

When Republicans and Democrats agreed to the Budget Control Act in 2011, there was hope that a "grand bargain" to avoid sequestration could be achieved that would include entitlement reforms and tax changes.

Democratic Sen. Chuck Schumer of New York said the continuing impasse will affect expectations for tax reform legislation later this year.

He said Republicans "just don't like even the most obvious revenues everyone would accept,'' including closing tax loopholes.

"Why should oil companies get subsidies when they are making so much money?" Schumer said. "Why should we reward companies for taking jobs overseas and they get a tax break when they do it?"

Republican Sen. Jon Thune of South Dakota said he's amenable to closing tax loopholes, but only as part of comprehensive tax reform legislation later this year.

He said Democrats "consistently want to selectively cherry-pick things out of the tax code that's going to make comprehensive tax reform more difficult."

"And we believe comprehensive tax reform ought to be focused on economic growth, and the way you get economic growth is you broaden the base by closing loopholes and you get the rates down,'' Thune said.

Seventy-six percent of Americans favor a mix of spending cuts and tax increases to avert the sequester, while 19 percent favor spending cuts only, according to a USA TODAY/Pew Research Center poll conducted Feb. 13-18. The telephone poll of 1,504 adults had a margin of error of plus or minus 3 percentage points.

Forty-five percent said they preferred the president's approach, while 38 percent said they preferred the approach taken by congressional Republicans.

Democrats say public opinion is on their side.

It would be "monumentally unacceptable" to include tax increases in any plan to avoid sequestration, Republican Sen. Jeff Sessions of Alabama said in an interview Thursday.

"If we get to the point where taxes are passed, they should be used to pay down the deficit, not fund more spending,'' Sessions said. "Yes, we can close loopholes and you could get more revenue. It should be part of tax reform.''

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