GOP hunts billions to offset tax cuts

THE BALTIMORE SUN

WASHINGTON - An urgent hunt is under way on Capitol Hill. Senior Republicans are the hunters, and money is the quarry.

At stake could be the $550 billion or more in tax cuts that President Bush says is needed to pull the economy out of a prolonged slump. As lawmakers prepare to craft a tax-cut package, Senate Republicans are trying to persuade party moderates who oppose tax cuts larger than $350 billion to vote for more.

With deficits rising, and with the looming costs of the Iraq war and reconstruction, tax writers must find ways to compensate for the extra bites they propose to take out of the treasury.

Close a loophole here, raise a federal fee there - it could mean the difference between what Bush calls a "little-bitty" tax cut and the larger package that he and most Republicans want.

So, lawmakers are scouring the tax code and budget for the "offsets" that would let them slash taxes more deeply without increasing the overall cost.

But don't expect to hear them speaking freely about their money-raising ideas. In this high-stakes game, members are not above stealing one another's ideas to pay for their own priorities.

Any tax plan that registers as black ink rather than red in the federal ledger is fair game as lawmakers try to shape a package that can pass the closely divided Senate.

The hunt for revenue can be a cutthroat pursuit. Each offset is essentially a tax increase, with built-in resistance from lawmakers and interest groups.

"The goal is a tax cut, but to get it through, you have to find tax increases - the revenue to do it," said Alan J. Auerbach, a tax policy professor at the University of California at Berkeley and a former senior tax staffer on Capitol Hill.

Sen. George V. Voinovich, a leading Republican advocate of capping the tax cut at $350 billion, has framed the matter bluntly for his leaders and Bush.

As the president has zigzagged the country - including to Voinovich's home state of Ohio - calling for tax cuts of at least $550 billion, Voinovich has stressed that he would vote for that only if tax cuts exceeding $350 billion are offset.

"If we can find the offsets," the senator said last week, "we can do more than 350 [billion]."

Bush argues that another round of deep tax cuts would create jobs and spur enough growth to erase those deficits in the future, essentially paying for themselves.

But many lawmakers, including Voinovich and fellow Republican moderate Olympia J. Snowe of Maine, say they are concerned that rising deficits sparked by big tax cuts would hinder the government's ability to pay for social programs and cause long-term economic problems.

Charles E. Grassley, the Iowa Republican who chairs the Senate Finance Committee, is looking to offsets to close the gap. He said during the weekend that it might be possible to find $50 billion in tax increases but that it would be "entirely impossible" to find more than that.

Grassley and other tax writers have plenty of ideas about how to raise revenue. But they are painfully aware that most of the proposals fall far short of the hundreds of billions of dollars needed to pay for a $550 billion tax cut. For now, they are mostly staying mum about their favorite offsets.

"Once one is identified, everyone wants to use it for something," said Jill Gerber, Grassley's spokeswoman. "People don't want to tip each other off or give away their ideas."

'Guarinied'

History holds a cautionary tale. In 1987, Frank J. Guarini, then a Democratic representative from New Jersey on the tax-writing House Ways and Means Committee, proposed to expand tax benefits for workers who returned to school. To pay for the plan, he said, Congress could exclude higher-paid workers from the program.

The committee rejected Guarini's proposal. But it grabbed the revenue he found to pay for it and used it instead to pay for other tax cuts. Since then, lawmakers and lobbyists have lived in fear of having their revenue-raising ideas snatched by rivals - a fate that some still call being "Guarinied."

"You normally try to keep your financing adventure, your offset, very close to the vest," said Bill Frenzel, a Minnesota Republican who served in Congress from 1971 to 1991 and was on the House Budget and Ways and Means committees. "You don't want to let yours out first."

'Nickels and dimes'

Many staff aides and lobbyists say it will be impossible to produce enough revenue-raising offsets to expand the tax cuts from $350 billion to the $550 billion total that Bush and many Republicans are pushing for.

"These are nickels and dimes," said Auerbach, the tax policy professor. "There are not nice little secret stashes of revenue floating around that you can use to raise $200 billion."

Under a budget plan approved by both chambers last month, opponents could block a tax-cut package that costs more than $350 billion in the Senate. But the House could go as high as $550 billion - and the final figure produced by Congress could be that much.

To secure the moderates' support for the budget resolution, Grassley said he would not back any final tax cut exceeding $350 billion.

"They have their staff out shaking the trees," to find ways to raise revenue, said Clint Stretch, director of tax policy for the accounting firm Deloitte & Touche.

But there are no easy answers. There haven't been for decades.

"They got the easy, good ideas in '82, they got the less-easy, not-so-good things in 1984," Stretch said. "They're really down in the pile of bad ideas at this point."

Other proposals

There are, however, several proposals that lobbyists and lawmakers say might surface, some of which have already been designated to offset other tax-cut measures. Some are corporate accountability bills that are intended to close business tax loopholes.

One would bar companies from entering into transactions with no legitimate business purpose except to lower their taxes. Congressional analysts say this step would raise $11.5 billion over 10 years.

Also under discussion is legislation to stop U.S. companies from dodging U.S. taxes by creating a shell headquarters abroad. One such proposal would raise about $2.1 billion.

A related measure to crack down on corporate tax shelters, including penalties for companies that fail to report certain transactions, could yield $1.5 billion.

Lawmakers already have tapped some such items several times to pay for various tax-cut measures. They are certain to jealously guard any new ideas they identify, hoping to use them to fund their favorite tax breaks and avoid having them hijacked to pay for other members' proposals.

Another possibility in the search for offsets is federal user fees, imposed on those who use government goods or services. Congress has considered, for example, extending Customs fees to cover the cost of various tax breaks.

Tax writers could also turn to cuts in entitlement programs such as Medicare. But this would probably be impossible politically.

There are ways of stretching the tax cut without taking the painful steps of raising taxes or cutting spending. Officials in the Bush administration and Congress are considering phasing in key elements of the package over several years, such as the elimination of the tax that shareholders pay on corporate dividends or the cuts in the individual income tax rates.

"Gimmicks are far easier to swallow than offsets," said Joel Friedman, a senior fellow at the liberal-leaning Center on Budget and Policy Priorities. "Acceptable offsets are a limited pool, whereas these gimmicks - they're constrained only by the imagination."

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