No New Taxes

Grover's Tax Pledge Has a Giant Loophole

Bruce Bartlett has previously pointed out that the threat of the fiscal cliff has the potential to nix Grover Norquist's tax pledge since it may be impossible to avoid cuts to the defense budget without finding new revenue.

In his column this week, he identifies a loophole that would allow Republicans to raise revenue while still adhering to the pledge: simply let the Bush tax cuts expire then cut them:

Given that the likely election result is continuation of stalemate between the two parties, some policymakers have been looking for a way out of the gridlock box. As I noted in a June 22 column, former Office of Management and Budget Director Peter Orzsag has been promoting the idea of letting all the tax cuts expire on schedule and then enacting a new tax bill retroactively. The idea is to change the political dynamics – making it a vote on cutting taxes rather than preventing a tax increase.

On July 16, Senator Patty Murray (D-OR) endorsed the Orszag option. She noted that this approach has the virtue of getting Republicans out from under the tax pledge that almost all of them have signed, promising never to raise taxes on anyone at any time for any reason.

But if taxes rise automatically, then even a vote on Obama’s proposal would become a vote to cut taxes and thus immune from pledge constraints. As Murray put it, “If the Bush tax cuts expire, every proposal will be a tax cut proposal and the pledge will no longer keep Republicans boxed-in and unable to compromise.”

Thus far, Obama has not endorsed the Murray approach. If he is smart, he will see it not merely as a chance to increase taxes on the wealthy, but to enact something much more ambitious.

Of course, if no agreement is reached, then taxes will just go up for everyone.