WASHINGTON (MarketWatch) — A leading Republican on Tuesday said in order to avoid the fast-approaching “fiscal cliff,” Congress should extend current Bush-era tax rates for a year and use that time to make fundamental changes to the country’s tax code and entitlement programs.
“I know I’m not going to get my way on everything,” said Sen. Pat Toomey, a Republican from Pennsylvania who previously served on the Joint Select Committee on Deficit Reduction. “But we do have to agree on the fundamental problem. These programs need to be reformed.”
Sen. Pat Toomey, a Pennsylvania Republican, speaks on tax reform at the Brookings Institution on July 24, 2012. Elizabeth Dexheimer/Medill News Service
If Congress and the president do not act by the end of this year, starting January there will be major cuts to military spending, and tax cuts affecting millions of Americans will expire.
In his remarks at the Brookings Institution, Toomey criticized Democrats for indicating they would be willing to let the spending cuts and expiration of tax breaks occur unless Republicans agreed to raising taxes on wealthy individuals. Last week Sen. Patty Murray, a Democrat from Washington state, said she would “absolutely continue this debate into 2013,” unless Republicans will compromise on taxes.
“It’s stunning to me,” Toomey said. “She’s suggesting we risk plunging the country into recession.”
Murray responded to Toomey’s remarks Tuesday in a speech on the Senate floor.
“While Democrats are fighting for tax cuts for the middle class, Republicans are not only holding them hostage to continue the tax cuts for the rich, they are also scheming ways to cut taxes for the wealthiest Americans even more,” said Murray.
When pressed about whether Republicans would support raising taxes, Toomey said “context mattered” and some would consider it so long as such action meant implementing “pro-growth tax reform” and fundamental “entitlement reform.” He noted, however, that he doesn’t believe raising taxes is “necessary economically, fiscally or arithmetically.”
According to a May 22 report by the nonpartisan Congressional Budget Office, the effects of going off the fiscal cliff could push the U.S. economy back into recession and stall overall economic growth.
Following Toomey’s remarks, a panel of tax policy experts discussed the consequences of Congress not acting before its year-end deadline.
“A combination of a stimulus package [which would let the Bush tax cuts expire] and going off the fiscal cliff is the single best, most feasible way to address the short- term and long-term issues,” said William Gale, co-director of Brookings tax policy center and former economist for the Council of Economic Advisors under President George H.W. Bush.
William Galston, chair of the Brookings governance studies program and a former assistant to President Bill Clinton, said it’s important to acknowledge the country’s spending problem.
“The fundamental question with pro-growth tax reform is not its architecture,” but instead “how the revenue gains will be divided between rate lowering and deficit reduction,” Galston said.