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Playing to Type, Conservatives on Cat Food Commission Don’t Want Any Revenue Increases

Many have wondered why the Cat Food Commission with a goal of stabilizing the nation’s medium-term deficit seems poised to make recommendations mainly on Social Security when that program gets separate funding outside of the budget. The answer is that the conservatives on the panel won’t have anything to do with tax increases of any kind, and in fact would rather recommend CUTS to corporate and capital gains taxes. Social Security is among the areas where Democrats on the panel may go along with a cuts-only approach, but in order to get that long-sought consensus, they’d have to do the same on all of the budgetary items:

Republicans on President Obama’s fiscal commission, which is tasked with coming up with ways to reduce the deficit, have privately argued in official meetings that the panel should recommend further corporate and capital gains tax cuts as part of its mandate. The panel has been charged with raising revenues and cutting spending, to bring the federal budget into greater balance. But if Republican members are successful, their advocacy would result in either an unbalanced report, dedicated wholly to spending and benefit cuts — or to gridlock and, thus, no recommendations at all.

At a tax reform working group meeting last week, Republicans argued against every possible tax increase. According to one source familiar with the deliberations, Republicans were even opposed to eliminating loopholes, exemptions, credits and other so-called “tax expenditures” unless the associated revenue increase could be used to lower capital gains and corporate income rates.

“Republicans have not even said that we should get any revenue from taxes,” the source said. “Even tax expenditures. They appear to want to use the savings on tax expenditures to cut corporate taxes. So shared sacrifices — except for large corporations who make out even better.”

There is a line of thinking that the listed corporate tax rates should be lower, with the tax expenditures and loopholes removed, because the current system has one of the highest rates among OECD nations along with one of the lowest effective tax rates. You could lower that nominal rate while broadening the base of collections, and have a simpler and more effective tax code that raises more money. But conservatives just want to do the first part – lowering the rates and making all else equal and revenue-netural. They want a program for businesses to lay off their creative accountants without having to pay much of anything to the government.

The corporations for whom conservatives want to provide this giveaway park over a trillion dollars in profits overseas, incidentally. This money could be repatriated even at a lower corporate tax rate and used to finance a host of job-creating priorities.

The point is that the “grand bargain” of the Cat Food Commission looks like it will end up with no bargain at all. Conservatives will tell their colleagues to take benefit cuts and spending cuts or leave it, and walk away with nothing. Given the profile of members of the commission, my money would be on “take it.” Remember, the more unbalanced the final proposal is, the better a chance it has to pass. Republicans will vote almost entirely as a bloc, and whether they swing to Yes or No will decide the fate of the package. Basically, that puts this in the hands of the Democratic members of the commission, who could choose to blow up the entire deal, or meekly accept some cuts-only solution.

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David Dayen

David Dayen