The House Republicans latest “counter offer” to President Obama’s plan for averting the so-called “fiscal cliff” reportedly includes a full extension of the Bush tax cuts, including those for the richest 2 percent of Americans. But an aide to Speaker of the House John Boehner (R-OH) said that the rate on the rich does not merit an argument, because it would be rendered “moot” by the tax reform plan the GOP supposedly plans to pursue.
However, the point is far from “moot.” Starting a tax reform effort — which for the GOP means cutting tax rates while eliminating loopholes and deductions — with the revenue baseline lower that that set by President Obama will result in revenue being lower post-tax reform, unless Republicans agree to a huge revenue increase as a component of tax reform.
Here’s why. Lawmakers usually assert that they want tax reform to be revenue neutral, meaning the same amount of revenue raised via the closing of loopholes and elimination of deductions is dedicated towards lowering rates. So starting from a baseline that includes an expiration of the Bush tax cuts for the rich — and thus is $800 billion higher — makes for a different revenue target.
The Simpson-Bowles deficit reduction plan, much lauded by conservatives despite the fact that it raises significantly more revenue than Obama’s plan, baked the expiration of the Bush tax cuts for the wealthy into the cake, and laid out a tax reform plan from there.
But Boehner’s gambit is to start tax reform with a baseline at least $800 billion lower than that envisioned by Obama, thus rigging the game in the GOP’s favor. Boehner and Republicans can then call for “deficit neutral” tax reform that permanently enshrines the revenue level included with the Bush tax cuts. So at the end of the tax reform effort, the GOP would have ensured that no more revenue is raised than was raised by the Bush tax system, and possibly far less will be.