Taxes Remain Stumbling Block For Deficit Panel

October 28, 2011

Wall Street Journal

By JANET HOOK

The rejection by Democratic and Republican members of the deficit-reduction supercommittee of each others' opening offers may mark the beginning, not the end, of an intensifying effort to determine whether taxes will be raised as part of a compromise, officials following the work of the panel said Thursday.

House Speaker John Boehner (R., Ohio) acknowledged that the 12-member House-Senate Joint Select Committee on Deficit Reduction was still far from reaching an agreement, but he said he was keeping up the pressure on the panel not to give up.

"I expect that it's going to be very difficult to get to an outcome, but I am committed to getting to an outcome," he said. "We're into the really tough time and it is going to take a lot more work."

The committee has less than a month before its Nov. 23 deadline for producing a bill that cuts at least $1.2 trillion from the deficit over the next 10 years. If it fails, or if Congress doesn't enact the bill by year end, deep across-the-board cuts will be made in defense and domestic programs beginning in 2013—an outcome that Mr. Boehner said he was determined to avoid.

The full committee is meeting almost daily, and panel members have been gathering in splinter groups and party caucuses to develop options and explore compromises.

But the two parties' initial deficit-reduction plans illustrate how the largest obstacle to a deal remains the tax issue.

Some Democrats on the joint committee backed a $3 trillion deficit-reduction plan that includes $1.3 trillion in tax increases over 10 years—the amount President Barack Obama called for in his annual budget when he recommended, among other things, allowing tax rates to rise on upper-income taxpayers.

Republicans countered on Wednesday with a $2.2 trillion deficit-reduction proposal that included about $40 billion in tax increases that would result from a technical change in formulas used to adjust government benefits and tax brackets for inflation.

The Republicans' plan also assumes about $200 billion in new revenue because of economic growth they expect to be generated from a proposed tax-code overhaul.

Democrats say those projections don't amount to serious concessions on taxes. By contrast, they believe Mr. Obama and party leaders have shown a willingness to compromise—and to risk angering their liberal wing—by proposing to cut entitlement programs like Medicare and Medicaid.

The plan offered in the committee this week by Sen. Max Baucus (D., Mont.) called for $500 billion less in projected Medicare and Medicaid spending over 10 years.

At least one House Democrat on the panel didn't support the Baucus proposal because of the Medicare cuts, and many Democrats outside the committee were furious that their party made such a concession.

"That's a nonstarter—and that's from our side," said Rep. Henry Waxman of California, ranking Democrat on the Energy and Commerce Committee, who aired his complaints Thursday in a meeting with party leaders and deficit-committee members. "I don't like Democrats having an offer out there that their own team cannot support."

However, at a news conference earlier, House Democratic Leader Nancy Pelosi was noncommittal about the Baucus plan—even its proposal, like one she has vehemently opposed in the past, to change the inflation adjustments in a way that would slow increases in Social Security benefits.

"I'm not making any judgment," she said.

The panel is also under pressure from members outside the committee who are urging them to not settle for the minimal $1.2 trillion deficit-reduction goal, but to aim higher. In the House, a bipartisan group of more than 100 Democrats and Republicans have signed a letter urging the panel to cut at least $4 trillion from the deficit and consider all options—including spending cuts and tax increases.

"I think the moment's here for the big deal," said Rep. Steve LaTourette (R., Ohio), a close ally of Mr. Boehner's. But he acknowledged that the call for higher taxes could spook Republicans who worry about a conservative backlash.

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