Several weeks after Republicans and Democrats began high-level negotiations to slash federal spending by trillions of dollars — the GOP’s price for raising the national borrowing limit, and avoiding a catastrophic debt default — Democrats finally peeped up. New tax revenues, of some kind, of some amount, would have to be part of the deal.
The group, led by Vice President Joe Biden, had already identified nearly $2 trillion in cuts to discretionary and mandatory spending programs — nearly enough to raise the debt limit through the end of 2012 and take a contentious issue off the table this election season.
That’s when Democrats said, “your turn to give!” and put $400 billion in tax cuts on the table. Republicans balked. No tax hikes at all. Some Republicans have left the door open to closing certain indefensible loopholes. But party leaders have tried, for all intents and purposes, to take the tax code off the table. Cuts only.
The Democrats’ response, from the rank and file up to President Obama, has been a political twofer. If Republicans are taking all taxes off the table, then they’re playing reverse Robin Hood — demanding trillions in cuts to social programs while refusing to budge on preferences to unfathomably wealthy special interests. It’s class war, but in tactical sense. If they can make the GOP feel so uncomfortable that they agree to end special tax favors for the ultra-wealthy — even if those favors don’t ultimately cost that much money — then maybe they can break the anti-tax firewall and encroach on $400 billion.
Here’s what they’re focusing on.Gulfstream Greed
There’s an obscure preference written into the tax code that allows owners of corporate jets to write off the costs over five years, instead of seven years, which is the depreciation schedule for commercial and cargo planes. Over 10 years, this costs the Treasury about $3 billion — less than pennies on the dollar, when negotiators are looking to save trillions. But it’s the principle, Democrats argue. Corporate jet owners are, by definition, fabulously wealthy and don’t need the money. If Republicans want to defend them, fine. But if not, maybe they can move on to some bigger-ticket items.
“Democrats are targeting $126 million in tax write-offs for the horse-racing industry that they say amount to a ‘Bluegrass Boondoggle’ offered up by Senate Minority Leader Mitch McConnell in the 2008 farm bill,” writes Fox News’ Trish Turner. In a Thursday morning speech at the progressive Economic Policy Institute, Sen. Chuck Schumer (D-NY) grinned mischievously about this one. McConnell is leading the GOP campaign against putting tax revenues on the table — this is an uncomfortable reminder of what he’s fighting to preserve. Or at least that’s the idea.
If you can sleep in it, pee in it, and prove that you do those things at least 14 days a year, you can treat your yacht like a home, and deduct the interest payments on your mortgage from your taxes. How nice for you, if you can afford a yacht! Fortunately, for the Treasury, this isn’t very many people. As policy goes, it’s not exactly the Bush tax cuts or the wars in Iraq and Afghanistan. It isn’t why we have deficits. But Democrats are on solid political ground asking why this should be allowed to stand while Medicaid gets the axe.
Double, Double Oil in Trouble
Now we’re getting into some significant sources of cash. And the politics are particularly potent. Gas prices are still high, oil companies are making record profits…and yet they’re benefitting from billions of dollars in tax subsidies every year. The biggest of these is a top marginal corporate tax rate that’s 3 percent lower than the 35 percent most businesses pay. If that alone were restored, it would put $18 billion back into the Treasury over a decade.
Capital gains are taxed at a much lower rate than income — 15 percent compared to a top income tax rate of 35 percent. That’s meant to incentivize investment, and – ideally – growth. But there’s a loophole in the tax code that allows people whose salaries are based on carried interest to pay the same low rate. In English, if you invest other people’s money, and are entitled a fixed percentage of the profits, you can treat your paycheck as if it was capital gains, and not contract money. This lets hedge fund and private equity investors walk away with billions and billions of dollars a year — and they’ve typically had bipartisan support for it on the Hill. Democrats want to put closing the so-called “hedge fund loophole” on the table. Billionaire hedge-fund managers are much less sympathetic than food stamp recipients. But Republicans are saying no way.