Norquist gives Republicans a break on taxes

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Urging Republicans to gear up for a season of pitched fiscal battles, anti-tax guru Grover Norquist is diminishing the potential fallout of waging another drawn-out fight over raising the debt-ceiling.

While Congress‘ action this week ended months of gridlock and prevented the nation from going over the “fiscal cliff,” the terms of the bipartisan compromise have erected a series of new budget precipices in the first part of this year.

Mr. Norquist, who runs Americans for Tax Reform and its influential no-new-taxes pledge, says Republicans had little choice but to support the fiscal cliff compromise and allow taxes to increase.

In fact, after several Republicans said last month for the first time that they would ignore his no-new-taxes pledge, he gave Republicans a green light to vote on an even bigger compromise. He said he doesn’t consider letting tax rates rise to be a violation of their pledge because the tax cuts were set to expire if Congress didn’t act.

Winning Mr. Norquist’s blessing was a major victory for Republican leaders, but critics blasted Mr. Norquist for flip-flopping.

Meeting with The Washington Times in November, he said voters would view the hands-off approach — letting some rates expire while extending others — as an overall tax increase.

On Thursday, he said he never strayed from his principles, arguing that in his statements to The Times he was opposing the early broadcasting of the Republican leadership’s willingness to accept an undesirable outcome.

“I was pleasantly surprised they could salvage 85 percent of the tax cut and it was made permanent,” he said in an interview. “They only cut off three fingers, and at the end of the day it was only three fingers, not two hands.”

But now Mr. Norquist argues that the tables have turned and Republicans have more leverage to extract long-term spending cuts.

He likened the situation to the dynamics of an old-time duel. If someone fires and misses, the other dueler immediately has the upper hand.

“Obama fired and maybe he nicked us, but now it’s our turn,” he said.

Republicans, he said, should have no qualms about using the debt-ceiling issue to press Democrats to agree to entitlement spending cuts.

The fiscal deal was created to solve a drawn-out, colossal battle over raising the debt-limit in summer 2011. After weeks of brinkmanship, the government came close to defaulting for the first time and credit rating agency Standard & Poor’s yanked the nation’s blue-chip AAA bond rating.

In his usual “damn-the-torpedoes” style, Mr. Norquist referred to the downgrade as “some jerk credit rating” and argued that it had no impact.

“Nothing happened. It didn’t raise the cost of borrowing. It was a political cheap shot rewarded by the Obama administration, which was completely unwarranted,” he said. “Which would they rather have — spending restraint or more unmanageable spending? This is a political silly thing.”

After the bitter brinkmanship that played out for weeks, the nation’s credit rating took a hit, and public approval ratings for all the top congressional leaders dropped, with Republicans taking a particularly hard beating.

But Mr. Norquist said Republicans shouldn’t be worried about approval ratings and argued that Republican losses in the House and Senate in the election had nothing to do with the debt-ceiling fight.

Before returning to Hawaii for a vacation this week, Mr. Obama warned Republicans against using a vote on the debt ceiling to try to win concessions on spending cuts. He insisted that he wouldn’t negotiate “with Congress over whether or not they should pay the bills they’ve already racked up through the law they have passed.”

Despite Mr. Obama’s line-in-the sand remarks, his former top budget adviser said the president has lost leverage for the budget battles to come and has no choice but to bargain with Republican lawmakers over raising the nation’s debt limit, which Congress will vote on in late February or early March.

“Well, I don’t know that [Mr. Obama’s] statement actually frankly matters that much,” Peter Orszag, the former director of the Office of Management and Budget, told CNBC late Wednesday. “You know, the sequester was only delayed by two months, so you’re going to have to negotiate over that. You’re going to have to negotiate over the appropriations bill for funding the daily operations of government.”

“So, if you’re negotiating over those things, and the debt limit’s kind of thrown in, you can say you’re not negotiating over the debt limit, but there will be negotiations in February or March.”

In the same interview, Mr. Orszag, now a vice chairman for global banking at Citigroup, said the White House lost bargaining power by not insisting that raising the debt limit be included in the fiscal cliff deal.

“My own perspective at least is I think the White House — in this second-best world — won that round, but they, by not insisting that the debt limit be tied to the package, it’s entirely possible they’re going to win the week and lose the quarter,” he said.

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