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Balance the Budget, But How?

April 28, 2011 - by Donny Shaw

Should taxes be on the table for balancing the budget, or should we look at spending cuts only? This is they key partisan debate right now in Congress, and it’s going to come to a head in the next few weeks when the House and Senate vote on the debt limit and, likely, some kind of structural enforcement mechanism for bringing annual deficits down to zero.

One of the common traits among the various deficit reduction policies that Republicans want to attach to the debt limit is that they would all enforce balanced budgets by mandating spending reductions. Revenues would, for all intents and purposes, be off the table. Under the CAP Act, the OMB would sequester “excess outlays” if spending rises above a certain cap. And under the balanced budget amendment, Congress could not increase taxes or close tax loopholes unless they can get a 2/3rds majority in both chambers.

Yesterday, Senate Majority Leader Harry Reid [D, NV] announced an alternative that he’ll be promoting when the debt debate begins. His “deficit cap” proposal would leave all revenue and spending decisions on the table. Budgets would have to be balanced, but future Congress’s would be free to deliberate as to how they want to balance the budget. Tax loopholes would be on equal footing, procedurally, to spending on social programs.

Obviously, the Democrats in the Senate aren’t going to go for the Republican plans, and the Republicans in the House aren’t going to go for Reid’s plan. It’s unclear where a compromise will be found. Worth noting is that the Republicans are starting off in a much stronger position here. Their proposals actively protect low taxes and tax loopholes. Reid’s plan, on the other hand, does not protect anything, which makes it seem more like where a compromise may ultimately lie than a strong entry point for Democrats in their negotiations with Republicans. Classic Democratic pre-negotiating, I suppose.

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