As Washington moves closer to the brink of a federal government shutdown, the battle lines are already being set for the next budget turf war.
On Tuesday, House Budget Committee Chairman Paul Ryan, R-Wis., released the House Republicans’ budget plan for fiscal 2012, which aims to slash spending in part by repealing the health care reform law and overhauling the way Medicare and Medicaid are paid (see House Republicans Aim to Lower Top Tax Rate to 25%). The chances of that happening under President Obama are practically zero, however. At the same time, the Ryan plan proposes to lower the top tax rate for both individual and corporate taxes to 25 percent, while simplifying the Tax Code and clearing out unspecified tax loopholes.
Meanwhile, Congressional Republicans and the Obama administration are facing off over the budget for the current fiscal year, with a shutdown averted only by a series of continuing resolutions in recent weeks. Republicans and Democrats remain far apart on the amount of spending cuts demanded from the current year’s budget, with Democrats offering $33 billion in cuts and Republicans holding out for cuts far larger in size.
However the budget gets balanced, it seems certain that some changes in the Tax Code will be needed. That could mean the elimination of deductions and credits favored by one constituency or another. It seems like practically every tax credit has its own lobbying group ready to defend it against the threat of elimination, so the prospects for tax reform are going to largely depend on which tax breaks have the least influential defenders.
Republicans have had disagreements of their own over which tax benefits should go on the chopping block. Many of them have pledged not to raise taxes in order to win support from influential groups like Grover Norquist's Americans for Tax Reform, so they are expected to oppose any attempts to repeal various tax breaks.
Even when they do decide to repeal a tax break, it can be tough going. For example, Sen. Tom Coburn, R-Okla., has introduced legislation to repeal the Volumetric Ethanol Excise Tax Credit, which despite its environmental cachet mainly goes toward subsidizing the largest oil companies and is largely duplicative of other efforts like the Renewable Fuels Standard. Coburn estimates that repealing the tax credit would save taxpayers about $5 billion a year, but he has been facing opposition from farm state senators and some fellow Republicans, including Chuck Grassley of Iowa, who want to keep the tax credit in place and have been placing holds on Coburn's proposed bills and amendments.
In the larger budget showdown, the Obama administration has been negotiating with Speaker of the House John Boehner, R-Ohio, who faces pressure from Tea Party members who prefer spending cuts over tax increases when it comes to lowering the deficit. In some cases, the spending cuts can seem more like an effort to eliminate federal funding for groups like Planned Parenthood and NPR, along with agencies like the IRS, the EPA and the SEC, which argue that they need the money for enforcement of tax, environmental and financial laws.
Both Republicans and Democrats claim they don’t want a government shutdown. So even if the current round of battles gets resolved over this year’s budget without a government shutdown occurring, we can expect to see a lot more wrangling ahead over the budget and taxes as politicians position themselves for the 2012 campaign.
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