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GOP quandary: Is a vote to eliminate tax breaks actually a tax hike?

One of the few potential points of bipartisan compromise in the budget stalemate is reining in tax breaks. A Senate vote Tuesday could reveal whether GOP senators are on board.

By Staff writer / June 14, 2011



An expected Senate vote on ethanol subsidies Tuesday represents a test of a larger issue: Can Republicans embrace a view of tax loopholes that finds common ground with Democrats?

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If so, that shared viewpoint could help build broader consensus on fiscal reforms designed to bring down federal budget deficits over time. If not, getting to a bipartisan "yes" on any major deficit-reduction would be much harder.

The point at issue goes beyond ethanol and the debate over whether corporations should reap a tax credit for putting the corn-based fuel into US gasoline. The deeper issue is a philosophical one: If Congress takes away a tax subsidy, should that count as a tax hike?

Many Republicans argue that any move that allows more tax revenue to arrive at the US Treasury is a tax increase. Killing the ethanol subsidy is a great idea, many say, but it should be done in a "revenue-neutral" manner, with new tax cuts designed to offset the change.

Others in Congress – including some Republicans – argue that rolling back this kind of spending is a good thing, even if the resulting boost to federal revenues is not offset by new tax cuts.

The poster children of this great tax debate are antitax lobbyist Grover Norquist and Sen. Tom Coburn (R) of Oklahoma.

Mr. Norquist, of the lobbying group Americans for Tax Reform, is pushing Republicans not to allow any new tax revenue to arrive in Washington. The rationale: The basic problem in the federal budget is too much spending, not too little taxes. And if more revenue flows in, Congress will spend it.

Senator Coburn is no lover of high taxes, but he’s backing a bill that would phase out the ethanol subsidies, and thus allow federal tax revenues to rise.

The ethanol vote is just one battle in a much larger budget war: Will fiscal discipline eventually be achieved by spending cuts, tax hikes, or a mix of both. Or not at all.

Currently, federal spending is running at historic highs, with only about 60 cents of tax revenue arriving for every dollar of spending.

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