08.26.10

Republicans for Tax Hikes

Despite the anti-tax hysteria on the right, an influential group of former GOP lawmakers are breaking with their party. Benjamin Sarlin talks to Pete Domenici about restoring fiscal sanity.

Economic policy is pretty simple if you’re a Republican in Congress these days: Tax cuts good. Tax increases bad. The rest is details.

But outside the House and Senate, a group of former Republican lawmakers and officials are hammering out plans to reduce the deficit that are likely to include significant tax hikes.

Politicians calling for budget cuts from the safety from retirement is nothing new. But this group plans on releasing a comprehensive set of budget recommendations in November for bringing down the $13 trillion-plus national debt over the long term. Among them is retired Republican Senator Pete Domenici, co-chair of the Bipartisan Policy Center’s Debt Reduction Task Force.

“It’s obvious that you have to look at the tax side,” Domenici says.

“We ran through all the cuts we can get and all the reforms to programs and, without going into details, I can tell you that you cannot get where you want to go with cuts and reforming entitlements,” Domenici, who represented New Mexico for 36 years before stepping down last year, said in an interview. “It’s obvious that you have to look at the tax side.”

Among the former lawmakers, bipartisanship is a constant mantra, and a willingness to put “everything on the table” is considered a basic prerequisite to negotiations. Domenici told The Daily Beast that he only agreed to participate in the task force if co-chairwoman and former Clinton OMB Director Alice Rivlin joined as well.

Other graybeard-heavy groups working on similar reports include the Peterson-Pew Commission on Budget Reform, which includes former Republican lawmakers and Democrats alike. That group will only offer recommendations on how Congress passes a budget, not what’s in it. President Maya MacGuineas, a former adviser to John McCain, has called for a major energy tax to reduce the deficit.

“There are some profiles in courage occasionally but they’re too few,” MacGuineas said of the current political scene. “I think that’s the role of these outside organizations. We're not elected to do anything, and it’s not like we have the power to implement anything, but by putting forward realistic policies it paves the way for lawmakers to make those tough choices.”

Then there’s President Obama’s deficit commission, co-chaired by former Republican Senator Alan Simpson and former Clinton Chief of Staff Erskine Bowles, who are set to release a report in December. Both the president’s group and the Peterson-Pew Commission include Rivlin.

The Daily Beast’s Reihan Salam: Republican Gay Rights BacklashSimpson is already under heavy fire this week for a salty letter he wrote to one critic, Ashley Carson of the Older Women’s League, in which he called Social Security a “cow with 310 million tits.” Simpson is no hero on the right either—he slammed Grover Norquist and other small-government activists as “a happy band of goofy warriors” for their resistance to tax increases and told Fox News host Neil Cavuto that “I don’t have to take that crap from those guys.” CNBC’s Larry Kudlow has blasted Simpson as a stealth Democrat and called his commission “an excuse to raise taxes.”

That Republican members of these groups would even look at the revenue side of the budget sets them apart from the overwhelming majority of current lawmakers and, given the scale of the deficit, is necessary to any realistic plan. Many of them were in office for President George H.W. Bush’s presidency-ending tax increase, which Domenici and Simpson both voted for, an act of fiscal responsibility that seems unthinkable in today’s GOP. Acknowledging the constraints faced by current politicians—including those on the president’s commission—Domenici noted that none of the members of his group hold office.

“We're not going to be embarrassed in what we represent and what we roll out,” he said.

But given the anti-tax hysteria of today, it’s a relatively low bar for Republicans to appear reasonable on the issue—and many on the left are worried that the commissions will provide a smokescreen for harsh spending cuts.

MoveOn.org recently launched a campaign to protect Social Security amid widespread expectations that the president’s commission will recommend raising the retirement age or cutting benefits. Advocacy groups like Social Security Works are circling the wagons as well, arguing that concerns about the program’s solvency are exaggerated. It was in this context that Simpson fired off his fateful email. He has since apologized, but the intemperate message is prompting some to call for his resignation, most notably New York Times columnist Paul Krugman. Context matters here as well—if the deficit commission’s legitimacy can be undercut before it releases its report, its critics should have an easier time blocking its proposals.

Domenici, a longtime friend and colleague of Simpson, said he hoped that the former senator and Carson would be able to “get rid of any animosity between them,” adding that the group in question expressed legitimate concerns about Social Security.

“He’s one of the funniest guys you’ve ever seen,” Domenici said of Simpson, however “why he doesn’t understand that you can’t play around with this, I don’t understand.”

As for his own group’s spending cuts, Domenici declined to provide details ahead of their final report. But there were plenty of hints that the suggested reforms were going to be tough, and Domenici said that Medicare, Medicaid, and Social Security would all be addressed. He predicted that the report would provoke a strong reaction from interest groups, but hoped that he could win them over with appeals to their patriotism.

“You have a group that says we're helping the veterans of America see that their pensions don't change,” Domenici said, offering one (as he stressed afterward, hypothetical) example. “So we need to say to these veterans, ‘OK, which is more important, that we put a budget together that solves the debt problem, that saves our country so we can be a power for good again, or do you want to say no and save your pension?’”

The deficit is already set to take front and center in Congress, as lawmakers debate whether to extend George W. Bush’s tax cuts. The White House has called on lawmakers to let $678 billion in tax cuts for wealthy Americans expire while keeping the portions affecting lower-income taxpayers in place.

Many Republicans, including Majority Leader Mitch McConnell, have argued that the tax cuts will pay for themselves, a theory contradicted by the nonpartisan Congressional Budget Office and most mainstream economists. Domenici said that the tax cuts, which he helped put in place, are indeed a significant contributor to the deficit.

“There is no question that there is a big impact on the debt from the extension of the whole package,” he said. He added, however, that he thought there were legitimate concerns that letting taxes for the wealthy sunset could harm the economy’s struggling recovery. He said he did not want to take a position on the issue out of fear that his commission’s report would become tied to the political debate.

Nonetheless, he said he believes that President Obama’s call to keep the majority of the cuts in place offered some vindication for their original passage.

“I don’t think I’m going to say we should have never adopted them,” he said. “I think it remains an issue in terms of whether the whole package should be left in place or not.”

Benjamin Sarlin is Washington correspondent for The Daily Beast. He previously covered New York City politics for The New York Sun and has worked for talkingpointsmemo.com.