If you need a sign that Washington is going to have a tough time breaking its gridlock on the budget, look no further than the fact that Democrats and Republican can't even agree to the terms of the debate.
For a while now, a so-called "grand bargain" on long-term deficit reduction has seemed elusive, though President Obama still hopes it can be achieved. The president plans to have dinner with about a dozen GOP senators on Wednesday night in an effort to revive talks and has plans for a rare trip to Capitol Hill next week. Republican Senator Lindsey Graham described it to The New York Times as "probably the most encouraging engagement on a big issue since the early days of his presidency." It's a promising development for proponents of deficit reduction, but a huge amount of distance remains between the two sides.
Democrats see no way of reducing the nation's annual deficits without both cutting spending and generating new revenue. But Republicans say Democrats already got a concession on revenue at the beginning of the year, when Congress voted to let upper-income tax cuts expire as part of a fiscal cliff deal, raising roughly $620 billion over 10 years. House Republicans say revenue should be off the table and that the focus should be solely on spending cuts.
The difficulty the two parties will have in reaching a compromise was on full display at Tuesday's Senate Budget Committee hearing. Democrats wanted to explore how to raise money by eliminating tax loopholes. Republicans took issue with the very premise of the meeting.
The committee’s Democratic chairwoman, Sen. Patty Murray, kicked off the Tuesday hearing arguing that “finding savings from unfair tax provisions is an opportunity to responsibly reduce our deficit.” But, to the committee’s top Republican, that argument was based on misguided reasoning.
“The title of the hearing, ‘Reducing the Deficit by Eliminating Wasteful Spending in the Tax Code,’ really suggests how much disconnect we have,” ranking member Sen. Jeff Sessions said in his opening statement.
“When you allow a person to keep money that they earn because of a certain deduction, for charitable or mortgage or healthcare payments, I don’t believe that’s spending by the United States government,” he said. Tax breaks shouldn’t be seen as an untapped revenue source, he and other Republican senators argued. Eliminating a tax break is just a tax increase. “You can’t spin it any other way,” Sessions said.
But Democrats argue that some loopholes are a form of spending through the tax code. That’s because they can serve the same purpose. Need-based federal grants for college and subsidized childcare are no different from tax-deferred college savings accounts or the childcare tax credit, argued Jared Bernstein, a former top economic advisor to Vice President Joseph Biden and one of the hearing’s witnesses. “If you believe we have a spending problem, you should also believe we have a tax expenditure problem,” he said.
Russell Roberts, a research fellow at the conservative Hoover Institution, who testified at the hearing also expressed discomfort with the phrase “tax expenditures,” but he suggested an alternative. “‘Special deductions’ may be a better phrase,” Roberts offered.