U.S. Budget Deal May Hinge On Ending Debate on Bush Tax Cuts

Published Nov 20, 2012. By John Shaw.

WASHINGTON (MNI) - Donald Rumsfeld, the two-time defense secretary and former corporate executive, is the author of a raft of management aphorisms that are of varying levels of profundity and insight.

One of "Rumsfeld's Rules" is not only relevant, but may in fact be critical to the coming negotiations on fiscal policy. In it, Rumsfeld quotes Dwight Eisenhower as saying "if a problem can't be solved, enlarge it."

This idea relates to the fate of the so-called Bush tax cuts.

Few issues continue to divide Democrats and Republicans more viscerally and passionately than the term "Bush tax cuts."

For many Republicans, the phrase refers to a well intentioned effort by President George W. Bush to cut taxes to spur economic growth.

For many Democrats, the phrase refers to a reckless policy that played a central role in ending America's short period of budget surpluses and ushering in an era of seemingly endless budget deficits.

"I think we should stop arguing about the Bush tax cuts," says Bob Bixby, executive director of the Concord Coalition, a budget watchdog group.

"We've been arguing about them for about 12 years now and I don't think a lot of minds are changing. The debate should move forward and consider fundamental tax reform. It's a far more productive debate to have. When you connect tax reform with entitlement reform, you can actually help solve a lot of our fiscal problems," he says.

Bixby said that a critical test of the coming talks is if they are able to sidestep -- or enlarge -- the debate on the Bush tax cuts and focus instead on overall revenue levels.

In a recent speech on tax reform, House Ways and Means Committee Chairman Dave Camp said that the comprehensive tax reform must go forward next year -- and will.

"Comprehensive tax reform is THE path forward. Tax reform can get more revenues for the president and Democrats. And tax reform can get more economic growth and job creation for the American people," Camp said in remarks to the Tax Foundation.

"We intend to move a comprehensive tax reform bill in 2013 -- no matter what," he said.

In his remarks, Camp praised the 1986 tax reform effort as one that was done "methodically, meticulously, and the result of work on both sides of the aisle."

A careful study of the passage of the Bush tax cuts in 2001 and 2003 by UCLA political scientist Barbara Sinclair provides a case study in how tax reform can ignite partisan acrimony for more than a decade.

Sinclair notes that Bush pressed for deep tax cuts in his 2000 presidential campaign, largely to prevent anticipated budget surpluses from going into spending programs.

When he came into office in 2001, he shifted his rationale for the tax cuts, saying the tax cuts were needed to revive an economy that was slowing down.

Sinclair said Bush and congressional Republican leaders aggressively used budget reconciliation procedures to pass large tax cuts with tiny GOP majorities in Congress. They largely ignored Democratic leaders in Congress and focused on picking up the votes of some conservative Democrats.

Sinclair writes that, "Republicans were able to enact huge tax cuts in 2001 and 2003 over intense Democratic opposition and despite their narrow margins of control."

Sinclair says the GOP designed intricate phase-in and expiration provisions to allow for the tax cuts to make it through Congress under budget reconciliation rules which allowed for simple majority passage.

"By adjusting the dates when tax provisions went into effect and when they expired, Republicans fit a much bigger tax cut into the amounts specified by the budget resolution than would otherwise have been allowed. The sunsets on a number of provisions would never go into effect, most Republicans believed; when they became imminent, political pressure would force extensions of the tax cuts. Proponents of the tax cuts called the strategy clever; opponents labeled it dishonest and charged it was intended to fool the public," she writes.

Some analysts have charged that Democrats employed a similar strategy and used the same procedural technique in passing health care reform in 2010 on a partisan vote.

Budget experts have said that one of the virtues of divided government is that it requires both parties to participate in critical negotiations and ensures that any final product has a considerable degree of bipartisan support -- or at least acceptance.

** MNI Washington Bureau: (202) 371-2121 **