'Taxes are off the table': GOP family feud over what that means, exactly

How to lasso the runaway US budget deficit and rein in government debt looks destined to be the signature issue of this Congress. Democrats are willing to raise selected taxes to do it; Republicans are holding firm on their "no new taxes" pledge, insisting that fiscal sanity be restored through spending cuts alone.

But what precisely constitutes a tax increase?

The answer may not be as obvious as it seems, and the ensuing debate is opening a surprisingly public wedge between two GOP icons of fiscal restraint.

Here's the nub of the Republican family feud: Is it ever permissible to end a tax break (or a tax deduction) for an industry or some other subset of taxpayers, without also finding offsets so that government revenues won't rise as a result?

Grover Norquist, of the antitax group Americans for Tax Reform (ATR), says no, period. By his calculus, any repeal of a tax break means more revenue for government, which will always spend it, and less freedom for Americans. For Mr. Norquist, the fight over debt and deficit is a golden opportunity to shrink government and undo much of the 60-year legacy of the New Deal. He insists that this is no time to give Democrats an escape from the deep spending cuts that GOP leaders want.

Sen. Tom Coburn (R) of Oklahoma, famous for attacking lawmakers' "pork-barrel" projects, says some tax breaks are so harmful to consumers and so distorting to the economy that they justify repeal on their own. Exhibit A, he says: the $5.6 billion annual tax credit for refiners to blend ethanol into gasoline. "You're paying $1.72 per gallon in tax credits that have gone to the industry, but you're paying for it later – or, rather, our kids are paying it later," says Senator Coburn. End the credits, and energy and food prices drop, and the savings to government help bring down the deficit, he says.

Coburn's formula could help break a deadlock over how to reduce the federal deficit by trillions of dollars – in time to avoid a default on the national debt, expected by Aug. 2. It would put some tax breaks on the table for negotiation.

"If we get rid of these misdirected tax credits, we can help grow the economy and significantly enhance government revenues," Coburn says. Not to include this option is to risk "fiscal disaster."

Democratic lawmakers, for their part, call for raising the tax rate for millionaires and cutting unpopular tax breaks, such as $21 billion in taxpayer help for the top five oil companies over the next 10 years.

So far, GOP House and Senate leaders aren't siding with Coburn. They say everything is on the table except taxes. In taking that stance, they are standing firm on the Norquist "taxpayer protection pledge," which for a quarter-century has been a rallying point for Republican lawmakers to oppose all tax hikes and that, if violated, could spell electoral doom for the transgressor.

But some conservatives on and off Capitol Hill say they support Coburn's approach on the ethanol subsidy – and even more broadly.

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