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Last updated: July 7, 2011 12:09 am
Key Republicans in the House of Representatives laid out their conditions for supporting new tax revenues in advance of a White House summit set for Thursday, where President Barack Obama will seek to shepherd lawmakers toward a deal on fiscal policy.
Eric Cantor, House majority leader, told reporters that reductions in certain tax breaks proposed by Mr Obama and congressional Democrats would have to be paired with new tax cuts in order to pass muster with the Republican party.
“If the president wants to talk loopholes, we’ll be glad to talk loopholes,” Mr Cantor said. “Any type of discussion should be coupled with offsetting tax cuts somewhere else.”
This stance – which represents a shift from the previous steadfast opposition to any new revenue in the deficit negotiations – could pave the way for an agreement if tax-based stimulus measures for the US economy are included.
For instance, the 2 percentage point payroll tax cut introduced last year, costing $120bn per year, could be extended through 2012 – and paid for with curbs on some deductions for oil companies, hedge fund managers, private jet owners and other businesses.
Other corporate tax breaks – such as a tax credit for research and development or a reduction in taxes on profits earned overseas – could also be approved and inserted into the agreement along with the elimination of some loopholes.
Mr Cantor’s remarks offered hope that the contours of a deal that would be acceptable to both Republicans and Democrats were emerging, following weeks of partisan rancour.
But it is still far from clear whether the two sides will be able to resolve all their differences over the next several weeks.
Chuck Schumer, the Democratic New York senator, poured cold water over Mr Cantor’s proposal on Wednesday, saying it was “like taking one step forward and two steps back.”
“The point isn’t to get rid of these loopholes simply to pay for new tax breaks elsewhere,” Mr Schumer said. “It’s to do it in a way that contributes to the reduction of the debt.”
Mr Obama will on Thursday meet with congressional leaders from both parties and their deputies to continue negotiations. The US Treasury has warned that if no deal is reached to raise America’s $14,300bn debt limit, the US could default on its debt, plunging the country back into recession.
Republicans have been seeking to extract deep spending cuts and budget reforms as a condition for raising the debt ceiling – and have been adamantly opposed to raising taxes in any effort to shrink long-term deficits.
“In our conference, which abhors tax increases because it stifles the private sector, there just aren’t the votes for a tax increase,” said Tom Price of Georgia, chairman of the Republican policy committee. Mirroring Mr Cantor’s remarks, Mr Price said any curbs to tax deductions should be considered only if “revenue neutral” – or combined with equal reductions in tax rates.
Devin Nunes of California, a member of the House ways and means committee, which has jurisdiction over tax policy, cautioned that curbing tax breaks should only occur within the context of a broader overhaul of the tax code – a hugely complicated undertaking.
“What you’re asking the House to do is fundamental tax reform in a matter of a few weeks,” Mr Nunes told the FT. “It’s naivety or stupidity, and it’s not going to happen between now and August 2,” he said. Mr Nunes added he was sceptical of the administration’s warnings on the debt ceiling, arguing that the negotiations could slide at least to the end of the fiscal year – on September 30 – without a financial calamity.
“I don’t believe that we are going to default on our debt for real. Technically you can default but I don’t think any bondholders will run off and think it’s Greece,” Mr Nunes said.
While the White House and Democrats have been willing to consider some spending cuts – including reductions in popular government healthcare programmes such as Medicare and Medicaid – the talks have hit an impasse over Republican opposition to any new revenues.
On Wednesday, Jay Carney, White House press secretary, said he was confident that “there are enough members of both parties in both houses who support the idea that a big deal has to be balanced” to include spending cuts and eliminating tax breaks.
The Obama administration and congressional Democrats have been seeking to press Republicans to relent on tax increases by insisting that they would affect only the wealthiest citizens, with provisions specifically hitting private aircraft owners, hedge fund managers and oil companies.
But Michael Franc, vice-president of government studies at the Heritage Foundation, a conservative think-tank, says: “If it walks or talks or sings like a tax increase, they’re not going to be for it. The freshmen did not come to Washington to raise taxes and [longer-serving Republicans] have not voted against every tax increase only to change their minds now.”
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