Republicans could accept tax increases if they received credit for growth spurred by lower marginal rates, Sen. Chuck Grassley, R-Iowa, said on Wednesday, veering from the party line of no new taxes, period.
The GOP, Grassley said in an interview, would be able to stomach a net increase in tax revenue from eliminating tax breaks as long as some of the new money came from dynamic growth – and was scored as such by the Congressional Budget Office.
“Congress has to be able to dictate to CBO that you get credit for the dynamic economy” effects of lowering nominal rates, Grassley said. If that condition were met, he said, Republicans could get behind a deficit plan along the lines of the Simpson-Bowles commission’s recommendation of a 3-to-1 ratio of spending cuts to tax increases.
“That’s been the hold-up: When the Gang of Six was trying to follow Simpson-Bowles, there was some opposition in the Republican caucus toward the Republican members of that -- and the feeling was that we weren’t getting enough credit for economic growth,” Grassley said. “If that problem can be solved, I think it brings Republicans along.”
To date, the GOP has embraced lower marginal rates going hand-in-hand with the elimination of some breaks in a “revenue-neutral” formula. Asked repeatedly if he was indeed endorsing a net increase in revenue that was not just attributable to anticipated growth, Grassley said he was.
“Yes,” he said, “but that’s kind of a touchy thing to talk about when [anti-tax lobbyist] Grover Norquist is making the decision of what’s a tax raise, and that’s why I put emphasis on getting economic growth scored.”
Grassley said that the scoring change Republicans would require in order to sign off on such a plan would reap dividends for the GOP’s small-government approach over the long term.
“If you get CBO turned around to dynamic scoring, it will benefit the conservative approach to government and taxes in later years,” the former chairman of the Senate Finance Committee said.
Conceding that some Republicans could blanch at the idea initially, Grassley said the delayed gratification – of the government officially scoring the positive economic effects of lowering nominal rates from now on – would be worth it.
“A little bit lost next year is a big gain down the road,” Grassley said.
Many economists have said that simplifying the tax code by ridding it of distortional loopholes would indeed increase efficiency and spur growth, and Grassley pointed to previous tax reform bills – from the 1920s through the bill championed by President Kennedy on through the Bush cuts of 2001 and 2003 – as “track records” that show reducing nominal rates can give the economy a jolt.
Grassley’s recommendations may amount to heresy for some conservative Republicans, but the blunt senator who recently caused a stir with a tweet that implied President Obama is “stupid,” had much more pointed advice for Democrats seeking a compromise on taxes and spending.
“The starting point is the president, and the Democrats after him, embracing the recommendations of his own Simpson-Bowles deficit commission, which he has never done,” Grassley said. “He ignores the recommendations of the commission he formed. That’s not leadership.”