The rough outline of what might turn into a workable debt ceiling bargain appears to be coming together. House Majority Leader Eric Cantor moved the ball forward on Wednesday by identifying a point of agreement with the White House.
“If the president wants to talk loopholes, we’ll be glad to talk loopholes,” he said, but the changes “should be coupled with offsetting tax cuts somewhere else.” The Virginia Republican added that “preferences in the code aren’t something that helps economic growth overall.” Broader reform that stimulates growth is exactly what we need.
Both sides have agreed in principle to more than $2 trillion in spending cuts, but President Obama and Senate Majority Leader Harry Reid insist on saving face by eliminating relatively minuscule tax breaks on oil companies, boat manufacturers, horse owners and aircraft producers. None of the Democrats have advanced a serious argument about how tens of billions in tax hikes on specific industries would make a dent in $14.3 trillion worth of debt.
Mr. Obama continued on Wednesday to fixate on the hate-the-rich rhetoric. “The debt ceiling should not be something that is used as a gun against the heads of the American people to extract tax breaks for corporate jet owners,” he said at his Twitter town hall. Mr. Obama’s tax hike on plane manufacturers would yield $3 billion over ten years. It would take 4,766 years for the airplane tax to pay off the debt.
Senate Republican Conference Chairman Lamar Alexander pointed out on Wednesday that when Congress instituted a higher tax on yachts in 1990, it “about put the American boating industry out of business. It cost 7,600 American jobs. And the federal government actually collected less money, it lost money, because the cost of unemployment benefits and lost revenue. The Tennessee Republican noted that the result was “Congress came back in 1993 and repealed it.”
Mr. Reid stuck to his talking points Wednesday, saying, “Democrats want to end special tax breaks for the millionaires and billionaires who are lucky enough to be able to afford private jets and yachts.”
The Democrats call any boat for which an American takes a deduction a “yacht.” In fact, most people who own boats are middle-class, with 75 percent of all boat owners having a household income of less than $100,000, according to Jim Currie of the National Marine Manufacturers Association.
“It’s all rhetoric that you are subsidizing rich people,” Mr. Currie told The Washington Times. Closing the mortgage deduction on boats “wouldn’t be meaningful; it will probably get lost in the rounding off,” he explained. The $31 billion boat-building industry supports 135,000 jobs and is already struggling from the economic downturn.
It’s true that the tax code is littered with special-interest deductions, and getting closer to a flatter rate system is ideal. Senate Minority Leader Mitch McConnell countered the Democratic demagoguery by saying that “tax reform needs to occur again; it happened 25 years ago, but lots of preferences have crept back into the code.” The Kentucky Republican also said that “to cherry-pick items in the context of this current negotiation with the White House strikes me as pretty challenging.”
It’s unlikely that real reform will happen as long as Mr. Obama and Mr. Reid are fixated on small-time political gimmicks. In negotiating with the White House, Republicans should only cede ground on the so-called loopholes in exchange for bringing down tax rates in areas that will stimulate the kind of growth our economy desperately needs. On this last major hurdle, GOP leaders must hold strong against the urge to agree to tax increases just to get the deal done.
Emily Miller is a senior editor for the Opinion pages at The Washington Times.