Super Committee Republicans are floating a trial balloon that would produce new tax revenue, in apparent contravention of Grover Norquist’s taxpayer protection pledge, according to Wall Street Journal editorialist Stephen Moore.
But as Moore explains that the offer has a catch:
One positive development on taxes taking shape is a deal that could include limiting tax deductions, perhaps by capping write-offs on charities, state and local taxes, and mortgage interest payments as a percentage of each tax filer’s gross income. That idea was introduced on these pages by Harvard economist Martin Feldstein.
In exchange, Democrats would agree to make the Bush income-tax cuts permanent. This would mean preventing top rates from going to 42% from 35% today, and keeping the capital gains and dividend tax rate at 15%, as opposed to plans to raise them to 23.8% or higher after 2013.
Neither Republican nor Democratic aides were immediately available to discuss the proposal. But if accurate as reported, it represents both a significant expansion of the growing rift between Norquist and the GOP, and a bad deal for Democrats.
For months, Republicans have insisted that any tax reforms they agree to be mathematically revenue neutral. If they somehow trigger a burst of economic growth, and thus increase revenue, that’s fine — but effective rate increases were verboten. Likewise, they tried to construe revenues collected in the form of higher fees, copays, etc. as “new revenue” but refused to use the tax code for the same purposes.
The plan Moore outlined breaks the trend. Compared to a current policy baseline, it would generate new revenue all on its own. However, compared to current law it’s a giant tax cut — which brings us to the other key point.
This isn’t offered as a concession Republicans are willing to make in exchange for entitlement cuts — a key Democratic demand. It’s designed as a concession Republicans are willing to make if Democrats will agree to make all of the Bush tax cuts permanent — and thereby throw away an enormous amount of leverage they have over Republicans who are committed to extending them.
Democrats, thus, would be expected to agree to throw in entitlement cuts anyhow, just because. And to underscore the downside, the non-partisan Congressional score keepers would likely score this as a giant budget buster — not the trillion-plus-dollar deficit reducing deal the panel is supposed to be pursuing.
I’ll pass along an update as soon as I learn more.