Republican Leaders Offer $800 Billion in Revenue; Other Republicans Balk

Republican Leaders Offer $800 Billion in Revenue; Other Republicans Balk
December 4, 2012

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)

House Speaker John Boehner (R-OH) and other Republican leaders in Congress have offered to overhaul the federal tax code to take another $800 billion in taxes over the next 10 years, but some Republican legislators are already saying no to the deal.

Boehner’s leadership team, including House Majority Leader Eric Cantor (R-VA) and House Budget Committee Chairman Paul Ryan (R-WI), have publicly endorsed a plan that would raise the revenue from households that earn more than $250,000 a year – the same group President Barack Obama has repeatedly targeted for higher taxes. They made the offer to avoid the “fiscal cliff,” which would end the Bush-era tax rate cuts and shrink federal spending, beginning in 2013.

The major difference between the Republicans’ and president’s proposals is how the federal government would take additional money. The Republican leaders would do it by extending current tax rates but reducing or eliminating tax deductions and exemptions, thus subjecting more income to tax. President Obama and Democrat leaders prefer to raise tax rates.

‘Will Allow More Spending’

Some of the Republican Party’s more conservative legislators almost immediately slammed the Boehner proposal.

"Speaker Boehner's $800 billion tax hike will destroy American jobs and allow politicians in Washington to spend even more, while not reducing our $16 trillion debt by a single penny,” said Senator Jim DeMint (R-SC) in a statement. “This isn't rocket science. Everyone knows that when you take money out of the economy, it destroys jobs, and everyone knows that when you give politicians more money, they spend it. This is why Republicans must oppose tax increases and insist on real spending reductions that shrink the size of government and allow Americans to keep more of their hard-earned money.”

Democratic Party leaders also were none to keen on the proposal.

“The Republican letter released today does not meet the test of balance. In fact, it actually promises to lower rates for the wealthy and sticks the middle class with the bill,” White House communications director Dan Pfeiffer said in a statement. “Until the Republicans in Congress are willing to get serious about asking the wealthiest to pay slightly higher tax rates, we won’t be able to achieve a significant, balanced approach to reduce our deficit.”

In addition to raising taxes on high-income earners, the Boehner proposal would reduce entitlement spending $800 billion over the next 10 years. This would happen by cutting federal health program spending, including by raising the Medicare eligibility age from 65 to 67, and saving $200 billion by applying a lower measure of inflation to all federal programs, including Social Security benefits.

All For Eligibility, Inflation Changes

“I’m all for both increasing the eligibility age for Medicare from 65 to 67, which would just match the eligibility age for Social Security by the way in which it is slowly increasing to age 67, and using the Chained-CPI as a better measure of inflation to tie cost of living increases,” said Jason Fichtner, a senior research fellow at the Mercatus Center at George Mason University who previously served in several positions at the Social Security Administration, including as Deputy Commissioner of Social Security (Acting) and chief economist. “Chained CPI” refers to a method of calculating consumers’ costs by accounting for substitutions people can make to avoid certain price increases.

Fichtner said it’s important that beneficiaries maintain their purchasing power as prices increase due to inflation and added, “But the measure of inflation is important. The Social Security Act specifies that any cost-of-living adjustment be based on the percentage increase in the Consumer Price Index for urban wage earners and clerical workers: CPI-W. But the CPI-W doesn't take into account substitution effects.

“For example, if the price of bananas goes up due to a supply shock, consumers may buy fewer bananas but more apples and oranges. So while the CPI-W would record a higher inflation price for bananas, it wouldn't take into account the overall switch in the quantity and types of goods purchased, thus over-stating the true measure of inflation. A different measure, the Chained-CPI, takes into account these substitution effects.”

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)