Bloomberg News

Republican DeMint Criticizes Boehner’s Deficit-Cut Plan

December 04, 2012

Nebraska Senator Ben Nelson

Ben Nelson, Nebraska senator and Democrat, said the Republican plan signals “act two” in negotiations over the so-called fiscal cliff. “ Photographer: Mannie Garcia/Bloomberg

House Speaker John Boehner’s proposal to generate $800 billion in new revenue “will destroy American jobs” and Republicans should oppose it, Senator Jim DeMint of South Carolina said today.

The comments from DeMint, co-founder of the Senate’s anti- tax Tea Party caucus, represent a strong indictment of Boehner’s plan from a fellow Republican lawmaker and highlight a divide within the party. Boehner yesterday proposed a $2.2 trillion deficit-cutting proposal that seeks $800 billion in revenue in the next decade from an overhaul of the tax code that would curb some breaks.

“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,” DeMint said in a statement. “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.”

Obama Sets Higher Top Tax Rate as Prelude to Fiscal Deal

The remarks signify that Boehner will have to tamp down opposition from the anti-spending wing of his conference -- and probably rely on some Democratic votes -- to advance legislation to avert the so-called fiscal cliff through the House. Unless Congress acts, more than $600 billion in tax increases and spending reductions will begin in January.

Bipartisan Majority

“Is John Boehner prepared to bring this measure to a vote with the understanding that it will pass with a bipartisan majority? If he is, let’s press forward in negotiations,” the Senate’s second-ranking Democrat, Richard Durbin of Illinois, said today in an interview. “But if this is just a negotiation to win over the Tea Party Republicans, I am not very hopeful.”

Several organizations focused on limited government joined DeMint in criticizing Boehner’s offer. Tim Phillips, president of Arlington, Virginia-based Americans for Prosperity, said in a statement that it “leaves conservatives wanting.” The Heritage Foundation called the offer a “dud” and “utterly unacceptable.”

South Dakota’s John Thune, the third-ranking Senate Republican, said he “was not prepared to come out and embrace or support” Boehner’s offer, which he said represented “a good-faith effort” by the speaker.

House Republicans Propose $2.2 Trillion Fiscal-Cliff

Republicans backing Boehner’s offer including House Majority Leader Eric Cantor of Virginia and Budget Committee Chairman Paul Ryan of Wisconsin.

Moving Forward

Senate Minority Leader Mitch McConnell of Kentucky yesterday issued a statement endorsing Boehner’s proposal. Asked about it today, McConnell said only that it was “important that the House Republican leadership is trying to move the process forward.”

Senate Majority Leader Harry Reid said the Tea Party “has a firm grip on the Republican Party.” While the revenue component of Boehner’s proposal falls far short of what’s necessary, “it’s apparently enough to get the Tea Party to scream bloody murder,” said Reid of Nevada.

Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said today that a deal must include up-front revenue “this month.” He said, “We can then turn to overhauling our tax code for the modern economy.”

Tax Increases

The timing of tax increases is one of the divisions between the two parties. President Barack Obama has called for about $1 trillion in tax increases that would begin taking effect immediately and another $600 billion that would occur through an overhaul of the U.S. tax code.

House Republicans’ letter to Obama yesterday didn’t specify whether any taxes would increase in 2013 under their plan.

Boehner’s proposal lacks what Obama calls essential for a fiscal agreement: higher tax rates for the top 2 percent of U.S. earners. The Obama administration rejected the plan, which would raise the Medicare eligibility age and slow Social Security cost-of-living increases.

In an interview with Bloomberg Television today, the president reiterated that any agreement must include an increase in rates on top earners, which Republican congressional leaders continue to rule out.

Even so, the Republican offer signifies a step forward in negotiations that four days ago Boehner had pronounced at a stalemate, Democrats say.

Eligibility Age

House Democratic Whip Steny Hoyer said proposals to raise the Medicare eligibility age from 65 to 67 “clearly are on the table.” So are other entitlement revisions, such as changing the way of calculating increases in Social Security benefits, he said.

“That doesn’t mean that I’d be prepared to adopt them,” said Hoyer of Maryland. Still “all things are on the table,” he told reporters, urging lawmakers in both parties to be open to compromise.

Reid has said any changes to Social Security are off the table in the fiscal-cliff talks.

The Republicans’ plan signals they are willing to consider new federal revenue from a net increase in taxes. Congressional Republican leaders said their proposal puts the focus on the White House to make the next offer.

Economic Growth

Previously, Republicans had insisted on revenue achieved only through economic growth. Last week they rejected Obama’s proposal to raise $1.6 trillion in taxes, including by increasing tax rates on the top 2 percent of earners.

The $2.2 trillion Republican plan is the first offer from either party that pitches major changes to U.S. entitlement programs, with $900 billion in cuts.

The proposal follows the outlines of a $4 trillion deal Obama and Boehner were negotiating last year before talks imploded. Even so, Democrats say the outcome of the Nov. 6 election gave them a mandate to seek a higher revenue number and to achieve it by ending the upper-income tax cuts.

U.S. stocks fluctuated between gains and losses. The Standard & Poor’s 500 Index slid 0.2 percent to 1,407.35 at 2:58 p.m. New York time. The Dow Jones Industrial Average fell 1.08 points, or less than 0.1 percent, to 12,964.52.

Treasury 10-year note yields fell one basis point, or 0.01 percentage point, to 1.61 percent at 3:23 p.m. New York time, according to Bloomberg Bond Trader data.

Spending Cuts

Obama’s plan would trade $600 billion in spending cuts for $1.6 trillion in tax increases, primarily targeting families with more than $250,000 in annual income. Boehner called it a “la-la land offer.” The budget deficit has exceeded $1 trillion for each of the four years Obama has been in office.

Under the Republican proposal, increases in Social Security benefits would be reduced under a new method of calculating cost-of-living increases. The so-called chained consumer price index would also apply to cost-of-living adjustments for government pensions and to setting income-tax brackets.

The plan would raise the eligibility age for Medicare recipients, now 65, although it didn’t specify by how much. That would save $100 billion, according to an excerpt of congressional testimony Bowles delivered in November 2011.

Boehner, in a letter to Obama outlining the proposal, said the additional $800 billion would come through “pro-growth tax reform that closes special-interest loopholes and deductions while lowering rates.” He didn’t lay out specific proposals for curbing tax breaks and didn’t offer additional revenue for 2013.

In the past, many Republican calls for additional revenue through rewriting the tax code intended for the money to come from higher economic growth spurred by the overhaul. Obama and the Congressional Budget Office won’t accept so-called dynamic scoring. Republican aides said the $800 billion would come from conventional scoring, which means there would be a tax increase.

North Dakota Democratic Senator Kent Conrad, chairman of the Budget Committee, called it “useful” that the revenue in the plan “is not make-believe.”

To contact the reporters on this story: Kathleen Hunter in Washington at khunter9@bloomberg.net; Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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