Back to Plan A

Phil Kerpen, Contributing Author: There is not a majority in the House of Representatives to support a tax plan that would raise taxes on any taxpayers – not even the much-maligned “millionaires and billionaires.” But that does not mean the House has acquiesced to the automatic tax hikes on every taxpayer slated for January 1. In stark contrast to the failure of “Plan B,” the House already succeeded in passing its “Plan A” back in August: H.R. 8. That bill would extend all current tax rates for one year, while committing to comprehensive tax reform in 2013. It passed the House on a rock solid 256-171 vote, with 19 Democrats joining 237 Republicans.

The Senate has taken no action on the bill.. Harry Reid did, for show, pass a Senate bill to raise taxes above $200,000 only, as favored by President Obama. But that bill, S. 3412, violated the Constitution’s requirement that revenue bills originate in the House. It would be legally void even if it did pass the House, which it won’t.

So now the ball is in Harry Reid’s court. H.R. 8 is the bill that passed the House. It’s the only duly-enacted bill to pass either chamber. He should call it up, amend it – if he can – and appoint conferees to reach a final agreement. President Obama will almost certainly sign any deal that can pass the House and Senate.

The economic stakes are huge. Boehner’s Plan B millionaire tax would have done significant damage to the U.S. economy. The Tax Foundation estimated the long-run impact of Plan B and found it would knock 0.92 percent off of GDP. That’s less than a third of the 2.88 percent that Obama’s plan would shave off the U.S. economy, but it’s still considerable. The do nothing option? That’s really ugly. Allowing taxes to rise on all Americans as contemplated under current law would mean a 9.61 percent hit to GDP, along with a 7.35 percent decline in wages and a 23 percent drop in private business stocks.

Now the insistence of House Republicans to make this all-or-nothing must infuriate Democrats, especially President Obama, who famously explained he would support higher taxes on capital even if they hurt the economy so much that they resulted in lower revenues. He said “fairness” was more important.

But like it or not, the American people elected a House of Representatives that is committed to stopping all tax hikes. They are so committed that they refuse to put their fingerprints on a deal to raise taxes on some even if it means risking automatic tax increases on all. Speaker Boehner tried his best to alter this reality for the sake of compromise. He couldn’t. So this is the reality Obama and Reid must deal with.

Why would Reid and Obama insist on tax hikes for everyone in this context? The economic suffering would be serious and widespread. They have repeatedly claimed that current rates should be extended for 98 percent of Americans. The intransigence of House Republicans has set up a scenario in which we’ll either have economically destructive tax hikes on every American, or we’ll postpone all the tax hikes for a year while we move forward on comprehensive tax reform. Democrats should do the right thing for the U.S. economy and choose the latter option.
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© Copyright 2012 Phil Kerpen, president of American Commitment where he first shared this article. He is the author of Democracy Denied: How Obama is Bypassing Congress to Radically Transform America – and How to Stop Him and a contributing author for the ARRA News Service.

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