When a Tax Hike Isn't a Tax Hike

In the imagination of liberals and, hence, the mainstream media, Grover Norquist of Americans for Tax Reform is the great Republican bogeyman preventing Congress from coming to a reasonable (read: liberal) deal on taxes and spending. So reporters have been busy the past couple weeks asking Republicans whether they would be willing to violate their Taxpayer Protection Pledge.

Some Republicans, like Sen. Lindsey Graham, Sen. Saxby Chambliss, and Rep. Peter King, have played along, saying that, yes, they'd be willing to break the pledge as part of a deal to reform entitlements and rein in spending. But when it comes to the pledge, the real question isn't whether Republicans are willing to break it--it's whether the pledge actually applies in the context of the fiscal cliff.

The fact is that at the start of the year all of the tax cuts first enacted under President Bush and extended in 2010, as well as the payroll tax cut of 2010, will expire for all taxpayers. So is preventing the expiration of the Bush tax cuts for people making less than $250,000 (or some other amount) the same thing as raising taxes on those making more than $250,000?

“I don’t see that as a violation of my pledge,” Oklahoma Republican Tom Cole told Politico. “I think we ought to take the 98 percent deal right now,” Cole said of extending income tax rates for families making less than $250,000. “It doesn’t mean I agree with raising the top 2. I don’t.” 

While discussing the expiring Bush tax cuts in a 2011 interview with the Washington Post, Grover Norquist himself acknowledged that "not continuing a tax cut is not technically a tax increase." But Norquist quickly clarified that extending tax rates for some is in fact a tax hike. During a recent interview with THE WEEKLY STANDARD, Norquist reiterated that any deal that doesn't maintain the current income tax cuts for everyone is a tax hike:

TWS: Obama is saying you should just extend it under $250,000. Is that functionally the equivalent of raising taxes on people over $250,000?

NORQUIST: It's exactly that. It is exactly that.

So it's settled then: Not continuing a tax cut is a tax increase--except, for some reason, when it comes to the payroll tax cut of 2010. Americans for Tax Reform has not responded to emails inquiring whether it opposes the expiration of the payroll tax cut. But during a November 27, 2011 appearance on Meet the Press, Norquist said it was okay to let the payroll tax cut expire:

MR. GREGORY: You heard Senator Schumer about the payroll tax cut extension, which Democrats would like to do; Republicans, including yourself, are opposed to. Look, when people talked about the Bush era tax cuts expiring, Republicans described that as a tax increase. These were on a 10-year time horizon. Why is it that a payroll tax extension that is not extended, why isn't that a tax increase?

MR. NORQUIST: Well, two things, I'm not opposed to extending the payroll tax particularly. I think it's destructive to, to extend it and raise some other tax the same dollar amount, matter of fact, in a more destructive economic policy. But the other piece to this is the reason why people view the one-year tax holiday that Obama put in a year ago, as a temporary tax increase was that President Obama said it was going to be temporary when he put it in . When the Republicans in the House and Senate passed the '01 and '03 tax cuts , those were, as, as their advocates said, intended to be permanent. They weren't for reasons of, of Democratic filibusters, but they were always intended to be permanent tax reductions. Obama was the guy who said that this was a tax holiday. Calling it a tax holiday kind of suggests they viewed it as temporary. Holidays aren't permanent.

Norquist's answer doesn't make a lot of sense. Whatever desire Republicans had in 2001 and 2003 to make tax cuts permanent, they were in fact temporary. Furthermore, letting the temporary payroll tax cut expire will cost taxpayers $115 billion in 2013. Letting the current income tax rates expire on high earners will cost $50 billion in 2013. If it's okay to let the big payroll tax cut expire, it's hard to see why it's not okay to let the smaller Bush tax cuts expire on high-earners.

So Republicans won't be breaking their tax promise by cutting a deal, but the difficult question remains: What is the best deal they can get? Some Republicans seem to think a grand bargain involving tax and entitlement reform is possible. But President Obama and congressional Democrats are not publicly showing any willingness to reform entitlements or the income tax code. Some Republicans think that Obama is bluffing, and he will ultimately cave on extending all of the Bush tax cuts if Republicans just stand firm. But it's two (the Senate and the White House) against one (the House), and polls indicate more would blame Republicans more if we fall off the "fiscal cliff." And that's why other Republicans, like Tom Cole, say Republicans should simply take the deal to lock in current tax rates for those earning less than $250,000 and live to fight another day.