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White House Hopes Catfood Commission II Takes Bush Tax Cuts Off the Table for Them

I guess I’m supposed to be excited by the fact that the Senate leadership used the Catfood Commission II as a carrot to get their caucus to sign onto the debt deal.

Three Republican Senate sources tell TWS that senators who vote against the deal will be ineligible to serve on the so-called “supercommittee” for deficit reduction that the legislation creates […]

There’s the problem. If, say, a dozen of the strongest fiscal conservatives vote against the deal, the pool of Republicans that can be expected to hold the line on taxes shrinks very quickly. And if a key Republican objective for the committee is to block tax increases, the exclusion of these strong fiscal conservatives makes meeting that goal more difficult.

Really? There’s a possibility that a pool of Republicans that can be expected to hold the line on taxes could shrink? Under what circumstances? I know we have this ballyhooed Gang of Six, which allegedly includes revenue increases. But their tax plan makes no sense and cannot be delivered as advertised.

On planet reality, nobody believes that Republicans will agree to tax hikes, no matter which Senators are picked for Catfood Commission II. There could be a forcing mechanism in the form of the Bush tax cuts, set to expire at the end of 2012. The Obama Administration swears up and down that this time is different, that the President really will veto any bill that extends the Bush tax rates on the wealthy. But there’s an “unless” involved in that, meaning that he would drop that threat if tax reform were tackled in the Catfood Commission II. And let’s face it, that’s how the White House wants this to go down. They don’t want to deal with the Bush tax cuts in 2012. Jed Lewison gets this right:

So President Obama wants the Bush tax cuts for the wealthy to expire. But that might not happen because of tax reform. And that “would also be a good thing” as long as tax reform increases revenue and doesn’t “result in putting added burdens on average Americans.”

In theory, that’s a fine position. Basically, it says let’s do tax reform that raises as much revenue as we’d raise by expiring the Bush high-income tax cuts, but let’s make sure that ordinary Americans don’t pay any more than they would otherwise have paid.

The problem, of course, is that we’ve heard this all before. In April, President Obama proposed using tax reform to raise revenue above and beyond the amount of revenue that would be raised by expiring the Bush high-income tax cuts. Now, the goalposts have been moved once again, and the Super Congress hasn’t even been passed into law.

By the time it starts getting serious, you can bet your bottom dollar that the goalposts will move again: there’ll be tax reform, and the CBO might even say it yields a modest bit of revenue thanks to dynamic scoring or some other budget math, but the real goal will be to take the Bush tax cuts off the table in the 2012 election and beyond. So yeah, the Bush tax cuts are here to stay, in substance if not in name.

This is why the White House is so concerned about baselines, and ensuring that the Catfood Commission II can achieve tax reform and can fold the Bush tax cuts into their equation. This is the deeply sought solution to the Gordian knot of the Bush tax cuts, in the view of the White House.

Only it’s really not so Gordian. The Bush tax cuts are highly regressive, even at the level under $250,000 of income. The rich benefit disproportionately from the “low-end” tax cuts, as well as the high-end. The money that would be gained from simply letting them expire, especially in light of this debt deal, would be more than enough to stabilize any deficit issue you can think of. More important, it’s the only credible threat that Democrats have had over the last two years, the only forcing mechanism on their side.

But they don’t want to use it.

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David Dayen

David Dayen