Fiscal Cliff Compromise: Devil Is In The Definition Of Revenue

Nov 27, 2012
Originally published on November 27, 2012 12:29 pm

A grand bargain, a compromise to avert the so-called fiscal cliff, could all come down to one word: revenue. It's now widely agreed that steering away from the cliff — the combination of spending cuts and tax increases set to hit at the start of the year — will require some combination of revenue increases and spending cuts. The central sticking point could well be whether President Obama and Congress can agree on the definition of revenue.

At the moment, the casual observer could easily get the sense that the president and Republicans in Congress are talking past each other.

"I think there's a growing consensus — a consensus that has long existed, but growing now in places that weren't always fertile for growth, that we have to do this in a balanced way and that revenue has to be part of it," White House spokesman Jay Carney said Monday.

Meanwhile, Senate Minority Leader Mitch McConnell, R-Ky., said on the Senate floor Monday that Republicans have stepped out of their comfort zone by agreeing to talk about revenue.

"We've been open to revenue by closing loopholes as long as it's tied to spending cuts and pro-growth tax reform that broadens the base and lowers rates," he said.

Talk Of Compromise

Now, the translation: When White House officials talk about revenue, they mean allowing the Bush-era tax cuts to expire for the wealthy. Under the president's definition of revenue, the richest 2 percent would see their top tax rate rise to 39 percent, and he'd also limit deductions and cut out loopholes. That's simply not what McConnell and many of his fellow Republicans mean.

But at this point in the negotiations, no one is saying that — at least not publicly. Instead, there's been a lot of talk of compromise from lawmakers like Senate Majority Leader Harry Reid, D-Nev.

"I remain optimistic that when it comes to our economy and when it comes to protecting middle-class families from a whopping tax hike come Jan. 1, that Democrats and Republicans will be able to find common ground," he said Monday.

Opposition To Tax Increases

The ability to find common ground may depend on just one man's definition of revenue — a man not in the White House or the Capitol. He's anti-tax lobbyist Grover Norquist, and he's gotten the vast majority of Republicans to sign a pledge saying they will oppose any and all tax increases. A few signatories have recently come out saying they won't be bound by the pledge, but Norquist made it clear Monday on Fox News that they do so at their own peril.

"We could ask President Bush, George Herbert Walker Bush, how his second term went after he broke his pledge," he said.

Those comments might explain why many in Washington are brainstorming ways to raise revenues without, strictly speaking, raising tax rates. Those ideas include capping deductions for the wealthy, more broadly limiting deductions, and possibly even making the wealthy pay the top tax rate on every dollar they earn.

David Kamin, an assistant professor of law at New York University, was involved in last year's debt-ceiling negotiations as a special assistant to the president.

"It's a possible place where people could maybe get to a compromise. It's also a classic move," Kamin says, "where one side says they don't want to increase the statutory rate, but the other side says maybe there's a way we could kind of do it in a different way that doesn't increase the statutory rate but gets us to the same place."

Falling Over The Fiscal Cliff

He says it's both mathematically and politically impossible to get all the revenue needed through closing loopholes and capping deductions while also lowering rates, which is what Republicans are calling for.

But unlike last year's debt ceiling negotiations, Democrats are the ones with the ultimate trump card, says Rep. Chris Van Hollen, D-Md., a member of the House Budget Committee.

"If they don't put any additional revenue on the table, the fiscal cliff is going to deliver more revenue than anybody wants," he says.

That revenue will come from automatic tax increases on just about everyone — if Congress and the president don't work something out by the end of the year.

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Transcript

RENEE MONTAGNE, HOST:

It's MORNING EDITION from NPR News. I'm Renee Montagne.

STEVE INSKEEP, HOST:

And I'm Steve Inskeep.

As Congress and the White House near a budget deadline, it's important to hear what they say but also understand what they mean.

MONTAGNE: At the end of this year, under current law, tax rates go up and spending cuts take effect. That could reduce the federal deficit, though experts also warn of economic damage.

INSKEEP: As they talk over solutions, politicians use certain terms that require definition.

MONTAGNE: A call for leadership often means bring your supporters around to my position.

INSKEEP: A call for compromise may well mean give up your central demand.

MONTAGNE: Leaders on both sides have now acknowledged that reducing the deficit will require extra tax revenue.

INSKEEP: But they have different definitions of what revenue means.

NPR's Tamara Keith Reports.

TAMARA KEITH, BYLINE: A grand bargain, a compromise to avert the so-called fiscal cliff, could all come down to one word: revenue. It is now widely agreed that steering away from the cliff will require some combination of revenue increases and spending cuts. And the central sticking point could well be whether the president and Congress can agree on the definition of revenue.

At the moment, the casual observer could easily get the sense that the president and Republicans in Congress are talking past each other. Here's White House spokesman Jay Carney at the daily briefing yesterday.

JAY CARNEY: I think there's a growing consensus, a consensus that has long existed but growing now in places where they weren't always fertile for growth, that we have to do this in a balanced way, and that revenue has to be part of it.

KEITH: And then there's Senate minority leader Mitch McConnell, who said on the floor yesterday that Republicans have stepped out of their comfort zone by agreeing to talk about revenue.

SENATOR MITCH MCCONNELL: We've been open to revenue by closing loopholes as long as it's tied to spending cuts and pro-growth tax reform that broadens the base and lowers rates.

KEITH: Now the translation. When White House officials talk about revenue, they mean allowing the Bush-era tax cuts to expire for the wealthy. Under the president's definition of revenue, the richest two percent would see their top tax rate rise to 39 percent. And he'd also limit deductions and cut out loopholes. And that's simply not what McConnell and many of his fellow Republicans mean. But at this point in the negotiations, at least publicly no one is saying whoa, no, we're not speaking the same language.

Instead, there's been a lot of this.

SENATOR HARRY REID: I've spoken often about compromise.

KEITH: This is Senate Majority Leader Harry Reid.

REID: And I remain optimistic that when it comes to our economy, when it comes to protecting middle class families from a whopping tax hike come January 1, Republicans and Democrats will be able to find common ground.

KEITH: The ability to find common ground may depend on just one man's definition of revenue - a man not in the White House nor the Capitol. He's anti-tax lobbyist Grover Norquist and he's gotten the vast majority of Republicans to sign a pledge saying they will oppose any and all tax increases. A few signatories have recently come out saying they won't be bound by the pledge. But Norquist made it clear yesterday on Fox News that they do so at their own peril.

GROVER NORQUIST: We could ask President Bush, George Herbert Walker Bush, how his second term went after he broke his pledge.

KEITH: Which might explain why many in Washington are brainstorming ways to raise revenues without strictly speaking raising tax rates. Those ideas include capping deductions for the wealthy, more broadly limiting deductions, and possibly even making the wealthy pay the top tax rate on every dollar they earn.

David Kamin is an assistant professor of law at New York University and was involved in last year's debt ceiling negotiations as a special assistant to the president.

DAVID KAMIN: It's a possible place for people to maybe get to a compromise. It's also a classic move where one side says they don't want to increase the statutory rate, but the other side says maybe there's a way we could kind of do it in a different way that doesn't increase the statutory rate but gets us to the same place.

KEITH: He says it's both mathematically and politically impossible to get all the revenue needed through closing loopholes and capping deductions while also lowering rates, which is what Republicans are calling for.

But unlike last year's debt ceiling negotiations, Democrats are the ones with the ultimate trump card, says Maryland Democrat and House Budget Committee member Chris Van Hollen.

REPRESENTATIVE CHRIS VAN HOLLEN: If they don't put any additional revenue on the table, the fiscal cliff is going to deliver, you know, more revenue than anybody wants.

KEITH: Because if Congress and the president don't work something out by the end of the year, taxes will rise on just about everyone, automatically.

Tamara Keith, NPR News. Transcript provided by NPR, Copyright NPR.