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Budget battle is as much about taxes as spending

The battle over the Budget Control Act -- and the cuts contained in it known as the sequester -- is as much about tax increases as it is about spending.

That fact might have gotten lost in recent days amid press conferences and photo ops from President Barack Obama, his Cabinet officers, and Democratic members of Congress warning of meat inspectors being furloughed, trucks being slowed by long delays in Customs inspections at U.S. ports of entry, and the canceled deployment of an aircraft carrier to the Persian Gulf.

Related: Sequester fight takes a toll on all

Obama and his allies argue that to help avert the $44 billion in cuts to federal outlays required by the Budget Control Act in this fiscal year, another round of tax increases is required.

Democrats later this week will bring to the Senate floor a bill to replace the spending cuts with $55 billion in tax increases on people with incomes greater than $1 million, higher taxes on the oil industry, and changes in rules on U.S. corporations with foreign operations. The Democrats’ bill would also trim subsidies to farmers and make smaller cuts to defense spending than the reductions in the Budget Control Act.

One way to look at the tax side of the battle is that Obama has an unfinished project which he detailed in his first budget blueprint in 2009, with an array of tax increase proposals. In his first term, he succeeded in shifting more of the tax burden to higher-income Americans and to U.S. coporations, first with the $400 billion in tax increases over ten years in the 2010 Affordable Care Act and then with the income tax increase he signed into law on Jan. 2, which the Congressional Budget Office estimates will raise between $600 billion and $700 billion over ten years.

But there are more tax increases that Obama asked for that he has not achieved yet. The current showdown with congressional Republicans is another occasion to get them.

Obama spokesman Jay Carney has said that Republicans would allow federal employees and contractors to be put out of work “in order to protect these special tax breaks for corporate jet owners and oil and gas companies.”

Obama has proposed a ten-year $580 billion package of tax increases, such as $2 billion in revenue from changing the tax depreciation schedule for general aviation aircraft, including corporate-owned or leased jets.

That idea raises the hackles of Sen. Pat Roberts, R- Kansas. Beechcraft Corp. and other jet manufacturers are based in Wichita, Kansas; Roberts said 40,000 jobs in his state are at stake.

“Not only do they propose that (tax increase), but the language in which they describe it, it’s always ‘fat cat corporate jets,’” complained Roberts.

He added, “The general aviation industry is always on the cusp (of financial viability) and it has become a favorite target” for Democrats’ tax increase proposals. “I’m damned tired of it.”

Roberts said, “I just don’t think it adds up – unless you want your general aviation industry to come from Brazil.”

On principle, Republicans object to Obama seeking to raise taxes again on some immediately after getting his tax increase at end of 2012. 

And there’s another reason Republicans oppose any just-get-us-past-this-crisis tax hike: every change in tax law they might agree to now chips away at what some GOP leaders hope to do as part of comprehensive tax reform later this year.

Rep. Dave Camp, R- Mich., the chairman of the tax-writing House Ways and Means Committee told reporters Tuesday, “I’m not interested in a one-off (tax reform or tax increase). … What I’m interested in is a comprehensive effort” to redesign the entire tax code, both the corporate tax and the individual income tax.

He added, “I’m not interested in more revenue at this point. The comprehensive reform I’m looking at is revenue neutral. As some people say, 'We gave at the office at the end of the year’” – meaning the tax increase Obama signed into law on Jan. 2 is all he is going to get.

On the spending side of the battle, some Republicans seem to acknowledge that Obama’s campaign to portray the $44 billion in spending cuts as disruptive and potentially disastrous is having some effect.

“All the hot buttons have been pushed,” Roberts said Tuesday. “We have the Secretary of Agriculture saying, ‘we’re going to call off all the meat inspectors, shut down the packing plants.’ Every cowboy in Kansas has been in touch with me saying, ‘what in the hell am I going to do with my cow herd?’”

But some Republicans argue that it might useful to see how Americans do with $44 billion less in spending  -- out of more than $3.5 trillion in total federal outlays this year.

“I think it would be a wonderful test of whether or not we have the ability to actually reduce spending in Washington D.C.,” said Rep. Mick Mulvaney, R- S.C.

Even though he voted against the Budget Control Act, Mulvaney is willing to see it begin to bite. “I agree with many of the concerns regarding the disproportionate share the Defense Department bears here,” he said. “But that aside, the real question is; can we really cut spending? And not just cut the growth in future spending, which is typically what a ‘cut’ is in this town. Can we actually spend less money in any agency this year than we did last year?”

The South Carolina Republican said Obama and his subordinates have the discretion and flexibility they need to manage the spending reductions. “It looks as though it would be up to the administration whether to furlough air traffic controllers -- or janitors at FAA facilities. It’ll be an interesting test of the president’s management abilities.”

Another fiscal conservative, Sen. Pat Toomey, R –Pa., said Tuesday, “The magnitude of the spending cuts -- it’s very important that they be preserved and not be delayed. The willingness to go ahead with them will send a constructive message to our citizens, to the markets.”

He added, “I think they’re badly designed; I think too much of them lands on our defense budget and the nature of the across-the-board cuts precludes a more thoughtful way of prioritizing. But given the disastrous fiscal situation we’re in, we’ve got to make these cuts.”  

Spending must be reined in, he argued, and the cuts are “crude way to do it, but at least it’s moving in that direction.”

He said he supports a Senate Republican effort to give Obama and his aides some flexibility in how they administer the cuts “so they can make the least disruptive cuts possible.” But in Obama’s test of wills with congressional Republicans, that kind of flexibility might not be in Obama’s tactical interest.