Debt Ceiling Update - Is the Gang of Six Plan a Tax Increase or a Tax Decrease?

Thursday, July 21, 2011

Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. As Democrats and Republicans get closer to a compromise on the debt ceiling, Roll Call staff writer Steven Dennis appeared today on The Brian Lehrer Show to give an update on the negotiations, the Gang of Six plan, and President Obama's position.

As the threat of default looms above the August 2 deadline for a debt ceiling increase, there is cautious optimism on Capitol Hill regarding a bipartisan $4 trillion debt reduction package from the so called Gang of Six Senators.  Nothing is certain, and Steven Dennis said the success of the plan depends on that elusive quantity: perception.

The reality is if Republicans by and large consider this to be a tax increase, it can't pass. Politically, they can't vote for it. And the people who say hey, it's not a tax increase, it's really a tax cut, there are all these wonderful things like lower rates, a simpler tax code, etc, then if they win that argument you can conceivably see a path forward for this.

Some Republicans are skeptical because the plan 'increases revenue' (red flag alert for GOP, God forbid, does that mean raised taxes?)

Increase or Decrease? Depends on the spin

If you count the fact that the Bush tax cuts are scheduled to expire, then the Gang of Six package could considered a tax cut. But if you don't count on that fact, you could look at this package as a tax increase. Yet again, with the plan's lower across-the-board tax rates--29 percent would become the new highest tax rate (it's now 35)--the Gang of Six projects their plan would spur economic growth, and that's where the 'increased revenue' would come from.

What many people like about this plan is that it would simplify the tax code. Who could be opposed to spending less hours on tax forms?

If you made the tax code more efficient there's general agreement that that would improve the economy and that would generate more revenue because people would be doing productive things instead of unproductive things.

Is closing tax-loopholes a tax increase? Don't brush these distinctions off as semantics, a lot of money and powerful people are involved.

Most of these deductions and most of these loopholes go to the people at the very top. The IRS said that the top 400 tax payers last year, their tax rate was 16.6 percent. That's actually lower than a lot of people at the bottom of the scale who have to pay social security taxes, etc.

The influence of Grover Norquist

The intensely powerful Republican lobbyist, Grover Norquist, who heads Americans for Tax Reform, convinced most House Republicans to sign a pledge promising they would not raise taxes. As of yet, he has not come out on one side or another of this tax package. If he's anti, the bill is all but doomed.

A cattle prod on Congress

Even with bipartisan kudos and the President's support, Dennis doesn't think the Gang of Six plan will get adopted in the next week--it's too complicated. There's no way of knowing at this point who's taxes are going to go up or going to go down in the package, because the bill isn't even written yet. But if Congress agrees to use the package as a framework, Obama has signaled he might be willing to sign a temporary debt ceiling extension plan. 

Would that just be a bridge to nowhere? Dennis doesn't think so because, failure to solve the debt crisis this time is not an option. A) the deficit is so much bigger than ever before and B) S&P is threatening to downgrade the nation's debt from AAA to AA if we don't pass a $4 trillion deficit reduction package in the next three months.

Liberal Opposition

Some progressive Democrats, like New York's Jerry Nadler, oppose the Gang of Six plan, saying it will unfairly burden the middle class by tilting the tax code in favor of the wealthy. He complains that the plan's cuts to social security, Medicare and Medicaid, and the strict controls put on new spending are too bitter to swallow. But those are the very aspects that tempt Republicans.

A lot of the things that they would get in this package--big cuts to Medicare, Medicaid, Social Security, etc, are things that you would never imagine a Democratic president to sign on to, which is one of the reasons why some Republicans are embracing this package and saying, look, a lot of this stuff is stuff we've been saying we want to do for years and here's our chance to do it, to actually get something enacted and not just talk about it.

The clock is ticking.


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Comments [27]


Wake up America, the Republican Party (RNC) is a master at the old Shell Game.

They want to cut Social Security and Medicare, this is not the way to cut the deficit but it's the easy way out instead of fixing the programs that are not working right. What they are trying to do is charge older Middle America and the poor higher rates for Medical coverage in order to cut funding. Social Security changes, why, this great country can't take care of our Senior Citizens at time of retirement?? Did you know back in the 1970s, Washington raided the Social Security (SS) account and since then write checks to cover the SS payments every year since.

No new Taxes the Republicans say, balance the budget, cut the National debt they say! Where the hell was the Republican Party when they had control of Washington from 2000 till 2006 under GW Bush? The surplus left by Clinton was used up and then they doubled the National Debt. At this time, Bush and the Republicans cut funding to the State, that intern forced the States to find new Taxes to replace what Washington cut.(Nice way to force new Taxes on America.)

Ask yourself, why give the Oil Companies 10 Billion Dollars in Tax Deductions, they haven't built a new Refinery since the mid 1970s? Ask yourself why 60% of US Companies studied had no Federal Tax liability between 1998 and 2005. The Republicans cry a good game but what they do is Protect Big Business and the Wealthy. Ask the Republicans why not Tax the CEO's who get such big Bonuses like,
Viacom $84.5 Million & Occidental Petroleum $76.1 Million & CBS $56 Million & Freeport McMoran Copper and Gold $35.3 Million and that's just to name a few.

Job, ask a Republican how they plan to create Jobs when so many Companies shut down US Operations and went to China. How do you create new Jobs, small business can't do it all? Many working people are working 1, 2 or even 3 part time jobs to make enough income to make up for the high paying jobs that went overseas! Did you know that even in the month before Mr.Obama took office, 150,000 jobs were lost under Mr. Bush.

Pork, the Republicans have spent to many dollars as did the Democrats and when it comes right down to it, "BOTH PARTIES HAVE SCREWED THIS COUNTRY UP." Just remember, "this national debt did not just start under President Obama!" This has been an on going problem no matter what Party is running Washington.

The word on the street is, if the Republican make changes in Social Security and Medicare the 2012 Elections will not go well for the Republicans. AARP alone has a 35 million voting block.

Best regard's
Robert & Mary

An Independent Party Voters
US Navy Veterans
PS: The information in this mail is believe to be accurate.

Jul. 28 2011 01:27 PM
Gary from queens

Grover Norquist is a pro islamist sell out of the US.

But the reason he has power is because he has a constituency that supports his agenda.

DUHHH. Why does Al Sharpton have influence? He's not in elected office.

Jul. 21 2011 10:48 AM
Gary from queens

I will quote from VD Hanson this week to address your other comment:

President Bush borrowed nearly $5 trillion in eight years. But President Obama easily trumped even that staggering figure with his plan to borrow over $6 trillion in his first four years in office. The architects of his economic policy — Austan Goolsbee, Peter Orszag, Christina Romer, and Larry Summers — have all resigned, and are now either back in tenured academia, making lots of money in the much-criticized revolving door, or writing op-eds about why the president’s plan isn’t working — or all three.

Here in the United States, the 5 percent of the population that pays nearly 60 percent of all the income taxes collected is excoriated as selfish and greedy for not being willing to pay even more. The 50 percent of the population that pays no income tax at all feels that it deserves even more from those who make more.

In other words, we are living in a paradox. Never has the Western public been so rich, lived so long, and been given so much government support — through unemployment insurance, food stamps, generous pensions, and medical care. Never has Western technology extended so many conveniences to so many millions, whether new medical technology, iPhones, GPS systems, or personal computers. Never has free-market capitalism created such wealth to fund redistributive government.

Jul. 21 2011 10:43 AM
Mad Mom in NJ

What your guest left out in regards to Grover Norquist is that he is a professional lobbyist. He runs the lobbying group Americans for Tax Reform. Running this political theater gig has been very profitable for him (he has not held a private sector job). He has (successfully) influenced elections with the massive funds he collects through his lobbying group by buying political ads to eviscerate anyone (dem or repub) who does not support his "pledge." And while he may have lost some influence with senators he is still very influential and effective among house members who are driving the bus on this debt issue. His influence is very similar in effect to that of Rupert Murdoch's and with out owning a media outlet!!!

Jul. 21 2011 10:40 AM
Gary from queens

Dear HughSansom

unemployment in europe on average is still higher, even after the austerity cuts in some of the nations. cuts that Obama isnt anywhere near accepting for the US, for which he was reprimanded by the Euros in the last conference in Canada.

Dear BrettG

just look at the huge expansion of the economy following the cut in the tax rates by JFK, Reagan, and GW Bush. Bush created 8 million jobs, and the longest job increase since WWII. Imagaine how much better it would have been if he had cut spending

Jul. 21 2011 10:39 AM
JR from NYC

how much did it cost to send the Atlantis to a last, "sentimental" trip to space??

cut needless, frivolous spending like that, not SS, Medicare and property tax benefit.

Jul. 21 2011 10:35 AM

These gifts to the Republicans' wet dreams of gutting SocSec, Medicare, and Medicaid, ever lower taxes on the rich, a super-dooper majority vote required for expenditures being surprising from a Democratic president? Among other goodies.

Indeed, they would be surprising if....

IF we had a Democratic president.

We have a Corporatist stealth Republican president who ran under the Dem banner as the only way to be elected.

We wuz robbed.

Jul. 21 2011 10:34 AM
Steve from bronx

This entire conversation takes place within the context of our "need" for a balanced budget like the states. Why do we say states have a balanced budget when they are constantly selling bonds to finance their capital debt? Could you discuss this.

Jul. 21 2011 10:33 AM

any member of a representative body who signs a pledge to never vote for a tax has tied his or her hands before entering office and may even violate their oath to properly represent their constituency. Such foolish people should not hold office.

Jul. 21 2011 10:31 AM
Elizabeth from NYC

Obama's inexperience is deletriously effecting the middle class. It is the American democrats fault for superficially voting for charisma instead of an experienced politician.

Jul. 21 2011 10:31 AM
Gary from queens

Progressives don't accept the fact that the only way capitalism works is through economic expansion and growth, and when all classes are enriched. (Progressives have been running Europe, and that's why Europe is dying.) It's fine to disagree, but you should first correctly understand the theory you're opposing. See:

People on this list should understand the laws of capitalism. When liberals villify and penalize successful businesses, investors or skilled professionals (except ultra wealthy hollywood actors), you will get negative growth, unemployment, and a decline in real wages. That, in turn, will cause Keynsian liberals to spend money that doesn't exist, leading to crushing debt and inflation, which further reduces the real value of people's assets.

Jul. 21 2011 10:30 AM

To "gary from queens" --

How is Europe dying?! Every western European country has lower unemployment, greater life expectancy, greater literacy, greater performance on the GINI index than the US.

Jul. 21 2011 10:29 AM
Susan from nyc

Thank you Jerry Nadler! Stick to your guns.

Jul. 21 2011 10:29 AM

Gary from Queens: fyi

David Cay Johnston on tax expenditures [tax rate cuts] & tax deductions – From WNYC radio/ Brian Lehrer Show - 12 July 2011


Government Revenue ##S from 1950-2010 – note Ike still wins for consistently high receipts despite smaller population, lower CEO/Exec salaries & marginal tax rates in the90% range.

Jul. 21 2011 10:29 AM

The guest is either lying or grossly misinformed when he says that "everybody says you have to cut Medicare." Simply false. Indeed, Paul Krugman and others have said we should expand Medicare.

The problem is not Medicare, but soaring medical costs -- a result of insurer and pharmaceutical gouging.

Jul. 21 2011 10:27 AM

Thank you to the caller who questioned Norquist's power. Elected Republicans work for the constituents who voted for them - not Grover Norquist! Can you imagine the tenor of debate if Democrats or Liberals took a pledge to Ralph Nader or Elizabeth Warren (which would be great!) and took their orders from them rather than the people who elected them?

Jul. 21 2011 10:26 AM

All the evidence to date shows that _even if_ the Republicans get everything they want in return for allowing the Bush cuts expire, they will still turn around and insist that the Bush cuts be preserved when the time comes.

Worse, a reduction in the top tax rate is exclusively a gift to the wealthiest. And, the wealthiest see most of their income in capital gains, which is already taxed at a lower rate anyway.

The guest is dead wrong about deficit levels if they are indexed to GDP. Interesting that moderates and conservatives are so determined to revise CPI to "chained CPI" (as reported by NPR today, but they don't want to account for debt and deficits in a realistic way -- with respect to the US economy as a whole.

And finally, as NPR noted yesterday, the ratings agencies have ZERO credibility.

Jul. 21 2011 10:23 AM
Gary from queens

Under Obama, the English language seems to have changed. The word "taxes" has been outlawed or something, and instead, it was replaced with "revenue".

But the government gets income from many sources: interest, balance of trade, use fees, etc.

Another source is taxes, to be sure, BUT NOT AS A RESULT OF RAISING RATES!!

Because when the economy grows, the gross amount of taxes collected increases revenue to the gov.

Jul. 21 2011 10:22 AM

Brian - did your crack staff find this from the Gang of Six:

Gang of Six OKs diversion of foreign company revenue away from the U.S. Treasury

“Territorial Tax provision from the Gang of Six”

Jul. 21 2011 10:22 AM
Nancy Meher from Manhattan

Who are the gang of 6? And why are they called a gang and not a group?

Jul. 21 2011 10:21 AM
Gary from queens


80% of the revenue increase to government by rescinding the Bush tax cut---for everyone who benefits from it---will come from people earning less than $200 k per year

Jul. 21 2011 10:21 AM
Martin Chuzzlewit from Manhattan

Why aren't we taxing Obama's massive campaign donations as income?

Why aren't we taxing unions ??!!! Union dues are income !

Unions are the "millionaires and billionaires" of institutions.

Jul. 21 2011 10:18 AM

The question is, when all the tax cuts, deduction curtailments, medicare-SS cuts, increases in out of pocket expenses are taken into account, which segment of the population will end up paying more and which will end up paying less?

Jul. 21 2011 10:18 AM
Charles Teague from NYC

Brian, since there's no good evidence that "trickle-down" actually exists, I wish you and other journalists would stop talking about it as if it had any legitimcacy.
By the way, did you hear? There's a theory that the Rapture will occur this October, so we really don't have to worry about this deficit limit thing! Discuss --

Jul. 21 2011 10:16 AM
Smokey Forester from LES

Has anyone computed how many people will lose their jobs with the $3.7T spending cuts, and how much the resulting unemployment insurance payments will be, and how much less the government will collect with all those additional unemployed people no longer paying taxes?

Not to say we shouldn't do it, but let's be honest about the unintended results.

Jul. 21 2011 10:16 AM
Gary from queens

All week I keep hearing on liberal shows like BL that a deal is about to be made, while on conservative and some MSM radio, I hear that the latest compromise is DOA because of the taxes included in the compromise.

Who's right?

Jul. 21 2011 10:15 AM
Susan from nyc

I did not vote for Obama to see him cave to the Republicans and dismantle the New Deal and every other socially responsible program of the last century. We desperately need a truly progressive third party--I am sick to death of voting for the "least worst."

Jul. 21 2011 10:12 AM

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