Budget wranglers find 'entitlement cuts' and 'tax hikes' still dirty words

'Gang of Six' deficit-cutting negotiators in the Senate are mum after rumors of entitlement cuts and tax code reform nearly derailed talks. Still, a short-term budget accord this week did manage to avert a government shutdown.

To solve America's rising debt crisis, would Republicans in Congress ever agree to reform the tax code in a way that boosts federal revenues (aka a tax increase)? Would Democrats ever concede changes to Social Security?

"No new taxes" and Social Security – the biggest political sacred cows of the two parties – loom large as a bipartisan group of six senators grapples behind closed doors to shrink the US budget deficit and relieve the debt burden. Rumors and press leaks of such tradeoffs in their plan have proved to be so toxic that the senators closest to the negotiations agreed this week to decline all comment on their progress. News reports of a potential deal last month nearly derailed further talks, as Republicans took flak from Republicans and Democrats turned against Democrats.

Meanwhile, leaders of the two parties and the White House did manage to come together this week to avert a government shutdown – at least for now. The House and the Senate agreed to cut $4 billion in spending this fiscal year and to extend until March 18 funding for the government. The House has voted for $61 billion in cuts to discretionary spending through Sept. 30 (end of the fiscal year), but the Democratic-controlled Senate shows little enthusiasm for that path. Both sides in effect bought themselves some time to come to agreement on the level of cuts for this year.

The tougher work, though, is what to do in fiscal year 2012 and beyond. Deficit spending will total $20 trillion over the next five years, according to the president's budget plan.

“To avoid passing on massive debt to future generations, our structural deficit must be addressed,” said David Walker, former Comptroller General and a founder of No Labels, a bipartisan group that sponsored a rally at the Capitol on Tuesday to urge that Congress put “everything on the table” in the budget talks.

That work is being taken up by the six senators, four of whom served on President Obama's National Commission on Fiscal Responsibility and Reform. They are using the commission's report, released in December, as a starting place for budget negotiations. It called for reducing deficits by $3.9 trillion over the next decade by cutting spending and entitlements and raising taxes, including ending popular income-tax deductions. "None of us likes every element of our plan, and each of us had to tolerate provisions we previously or presently oppose in order to reach a principled compromise," the report concluded.

Republicans and the tax pledge

One piece of the commission plan that fiscal conservatives most definitely do not like is a proposed reform of the US tax code. Under the commission's blueprint, reform would raise $785 billion in new tax revenues by 2020. Suspicions that the six senators – the so-called Gang of Six – are contemplating something similar has prompted Grover Norquist, president of the antitax Americans for Tax Reform, to fire off a letter to the three Republicans of the "gang": Sens. Tom Coburn of Oklahoma, Saxby Chambliss of Georgia, and Mike Crapo of Idaho. In it, Mr. Norquist charged that any move to support revenue increases would violate the ATR's Taxpayer Protection Pledge, which each has signed.

"If the Senate passes a bill with tax increases, it will never pass the House, so what's the point?" Norquist says in a phone interview. "Tax increases get in the way of cutting spending."

The GOP senators responded in their own letter that America's $14 trillion national debt requires lawmakers to consider the tax code, as well as spending cuts.

"Our pledge is to protect taxpayers, not special interests," they wrote in a Feb. 17 letter to Norquist. "To do so we must analyze every aspect of the federal budget, including the tax code." They added: "[W]e do not believe our efforts intended to avert tax increases on hardworking Americans violate any pledge we have taken, but rather affirms the oath we have taken to support and defend the Constitution of the United States against all enemies, foreign and domestic, of which our national debt may now be the greatest."

A break with important conservative groups in the run-up to an election would be daunting for Republican House members, who face voters every two years. But only one-third of all senators defend their seats in an election cycle. Senators Coburn, Chambliss, and Crapo are not up for reelection next year. Nor are any of the Democrats in the Gang of Six. Sen. Kent Conrad (D) of North Dakota would have faced voters in 2012, but he said on Jan. 18 that he would retire after this term.

Democrats and Social Security

For Democrats, the political "third rail" in bipartisan budget talks is Social Security. The Gang of Six is expected to call for significant changes in entitlement programs, including an increase in the Social Security retirement age.

Again, the president's fiscal commission has provided grist for that mill. According to its report, if Washington does nothing to change the Social Security program, Americans can expect a 22 percent across-the-board cut in benefits in 2037. "Over the next 75 years, the program faces a shortfall equal to 1.92 percent of taxable payroll. Seventy-five years from now, that gap will increase to 4.12 percent of payroll," its report concluded.

The prospect of a Social Security overhaul heading into a presidential election year has publicly divided the Senate Democratic leadership. Gang of Six member Sen. Richard Durbin of Illinois, who is also the Democratic whip, is at odds over the issue with majority leader Harry Reid of Nevada and Sen. Charles Schumer of New York.

Senators Reid and Schumer say changes in Social Security should not be a part of deficit talks. They are reported to be pressuring Senator Durbin to keep it out of any bipartisan budget/debt-reduction agreement – and expect to make "protect Social Security" a major Democratic campaign theme for 2012.

On NBC's "Meet the Press" on Feb. 20, Durbin split the difference. Social Security "does not add one penny to the deficit" and, untouched, will make promised payments for more than 25 years, he said. "But the deficit commission was given a charge: Add 75 more years of solvency.... We need to move on Social Security, but let's put it on a track that runs parallel but separate to deficit reduction."

Meanwhile, House Republicans are committed to including entitlement reform in their budget proposals. In a debt crisis, they say, all government spending must be on the table.