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National debt talks: Signs some in GOP may yield on tax 'loopholes'?

Republican and Democratic leaders resume talks with President Obama Thursday on raising the national debt limit and bringing down the deficit. Will anyone bring more to the table this time?

By Staff writer / July 7, 2011

House Majority Leader Eric Cantor of Va. speaks to reporters on Capitol Hill in Washington, Wednesday, July 6.

Manuel Balce Ceneta/AP

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Washington

When President Obama invited congressional leaders to resume debt talks at the White House on Thursday, he added a call to “check their ultimatums at the door” – and some fixed partisan taboos indeed appear to be shifting.

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For Republicans, the key ultimatum has been that all tax increases – marginal rates and loopholes in the tax code – are off the table. Democrats, for their part, have aimed to shield entitlements, such as Medicare and Social Security, from cuts as part of a debt-and-deficit deal.

But even these taboo topics may now be grist for a grand bargain to cut the federal deficit by as much as $4 trillion over the next 10 years and to avert default on the national debt by an Aug. 2 deadline. For Republicans, the danger here that they would appear to run afoul of the "taxpayer protection pledge" of Americans for Tax Reform, which 236 current House members and 41 senators (mostly Republicans) have signed.

But the prospect of a $4 trillion deficit-reduction deal, which would include raising the national debt limit to avert the first-ever US default on debt repayment, is tantalizing, too – even for some antitax Republicans. They are hoping that closing tax loopholes and then using that new revenue to reduce overall tax rates and pay down the national debt would make sense to their constituents, even if it is technically a violation of the taxpayer protection pledge because the revenue change does not net to zero.

“If we could come up with two or three things that made sense to the American people, then I think not only would we raise the debt ceiling but Republicans would win this debate,” said Sen. Lindsey Graham (R) of South Carolina on Wednesday. “I’m willing to close loopholes for upper-income Americans and recapture that income to lower [tax] rates and pay down the debt.

“If you took the ethanol subsidy and [then] paid down the debt [with the resulting revenues], I’d be OK with that. To lower tax rates to create more jobs but also pay down the debt, that makes perfect sense to me,” he added.

Until recently, GOP opposition to tax breaks has strictly followed Americans for Tax Reform (ATR) pledge, crafted in 1986. The pledge commits lawmakers to two positions: The first is opposition to “any and all efforts to increase the marginal income tax rates for individuals and/or businesses.” The second – and the crux of the current debt negotiations – rejects “any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.”

First to break with GOP antitax orthodoxy, in December 2010, were Sens. Tom Coburn of Oklahoma (R) and Michael Crapo (R) of Idaho, who backed the Bowles-Simpson deficit commission’s plan to cut $4 trillion from the federal deficit over 10 years through a mix of spending cuts, entitlement reform, and net tax increases. The Republicans said America’s fiscal situation is so dire that additional revenue had to be part of the mix.

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