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

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.