The President’s Revenue Problem

GOP wants to avoid sequester through spending cuts; Obama wants tax hikes

Sen. Levin / AP
• February 11, 2013 2:12 pm


Congressional Republicans intend to meet the deadline to avoid sequestration of discretionary spending by enacting spending cuts and no tax increases, an aide insists.

"We're still kind of seeing how things are going to play out," said a Senate GOP aide familiar with the proposals under discussion. Tuesday’s Senate Budget Committee hearing will begin to deal with specifics.

Obama’s plan to close tax loopholes is an attempt to increase taxes, Republican leaders said.

"If President Obama’s plan to ‘close loopholes’ results in American families sending Washington more of their tax dollars, then he should be up-front about what that plainly is: a tax hike," the Senate aide said.

"Presumably his budget will set forth some of these proposals, but numbers on a page don’t lie—so it will be difficult for the Administration to suggest that going after private planes and oil companies will come anywhere close to ending the trillion-dollar deficits that have been the hallmark of his presidency."

Obama was unclear last week what loopholes he wanted to close beyond oil subsidies.

"He is using that rhetoric of loopholes to go after specific industries," said William McBride, chief economist at the Tax Foundation. The oil subsidies will not shrink the deficit, he said.

"They’re a political, rhetorical device," he said.

Oil subsidies total $4 billion a year; sequestration would cut $500 billion over 10 years in defense spending alone.

"The credit, like other oil and gas preferences the administration proposes to repeal, distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system," according to a Treasury Department report on the administration’s 2013 revenue proposals.

McBride criticized the president for wanting a more neutral system while supporting "huge proliferations of green energy tax credits [which] very clearly are loopholes. The administration has been proposing a lot of this stuff and should be challenged on this."

A study coauthored by former Clinton economic advisor Robert Shapiro found that middle class families are heavily invested in oil companies despite claims that oil companies are benefitting on the backs of middle class consumers.

Twenty-one percent of oil corporation’s shares are in mutual funds, which are "held by 52.3 million American households, with a median annual income of $80,000 in 2011," the report states. Another 49 percent are in IRAs and 401(k) plans, with annual incomes between $55,000 and $70,000. Corporate executives hold less than 3 percent of company shares.

"The ownership of oil and natural gas company shares is broadly middle-class," the study states.

Republicans want to lower the corporate tax rate and in exchange eliminate tax breaks to make the tax code more neutral, which could ultimately save $20 billion.

Senate Armed Services Chairman Carl Levin (D., Mich.) proposed a plan last week to avoid the sequester by eliminating offshore tax avoidance, in which corporations shift their profits to nations with lower corporate tax rates.

"[The proposal is a] very dangerous misunderstanding of economics," McBride said. "Levin thinks if we build Berlin wall and then keep taxing corporations at the highest rate in the developed world that corporations won't simply relocate headquarters, and stop hiring and investing in the US."