GOP shifting on anti-tax policy

One of the most treasured tenets of the Republican Party — “No new taxes” — has been thrown open to debate by a simple question: What, exactly, is a new tax?

The answer, argues Grover Norquist, the godfather of contemporary anti-tax conservatism in Washington, is anything that increases federal revenue. Thus, closing loopholes that have allowed corporate giants and millionaires to slice away at their tax bills would constitute an unacceptable new tax — unless a comparable tax cut is made elsewhere.

But other views are emerging. Worried about the nation’s treacherous deficits, some in the GOP say that stanching the $1 trillion lost each year to individual and corporate deductions and breaks is vital to the nation’s fiscal health.

The schism has launched an epochal battle for the fiscal soul of the GOP, a party that has steadfastly followed the “no new taxes” credo for a generation.

The philosophical debate has taken on new urgency as President Obama and Congress try to negotiate a way to keep paying the government’s debt bills after Aug. 2. In the midst of that debate, Republicans are insisting on no new taxes and Democrats are pushing to keep both tax and spending policy on the table.

“This is a very big issue in the Republican Party,” said former Rep. Vin Weber, a party strategist who acknowledged that altering such a fundamental pillar of modern GOP philosophy is nothing if not “jarring.”

“But to solve this deficit problem we face as a country, we’re going to have to shake the foundation of both parties,” he said. “You have to ask both parties to really compromise — not on some small issue, but on something that’s central.”

The new debate was showcased in a test vote this week, when two-thirds of Republicans in the Senate agreed to do away with an ethanol tax break. The effort failed to achieve its objective, but confirmed the potential shift underway in GOP attitudes.

Democrats pounced on the ethanol vote as a crack within the GOP, intensifying a push to end tax breaks for oil companies, corporate jets and other special interests as part of the White House negotiations to reduce deficits.

Democrats, though, have their own inter-party battle over philosophy, centering on Obama’s proposal to end George W. Bush-era tax cuts for those earning $250,000 and above. Moderate Democratic senators facing difficult reelection contests next year are balking over that initiative.

Republicans are trying to decide whether tax breaks and credits actually constitute a form of back-door spending, taking money from one group of taxpayers to give to another. Some use the term “tax expenditures” for such measures.

The most visible split in the battle is playing out between Norquist and Sen. Tom Coburn, the conservative Oklahoma Republican.

Coburn last year became a pivotal GOP vote in favor of the recommendations of Obama’s bipartisan fiscal commission.

In its report, the commission proposed $4 trillion in deficit reduction over the next decade through a combination of spending cuts and new revenue — including the elimination of many tax breaks.

The three House Republicans on the panel, including Rep. Paul D. Ryan of Wisconsin, chairman of the House Budget Committee, voted no. Democrats on the panel also split.

Norquist announced that using the tax code to reduce deficits would be a violation of his Americans for Tax Reform’s no-tax pledge, a must-sign document for virtually any Republican seeking federal office. Countless Republicans have signed the pledge over the last 25 years, including most of those now serving in Congress.

Norquist is famous for saying years ago that he wants to shrink government to the size where he can “drown it in a bathtub.” He argues that by closing loopholes and using the revenue for federal purposes, lawmakers would be raising taxes.

“A tax increase just happened? Who knew?” Norquist said in mock surprise. “That’s like guys who put land mines in the ground and then when children wander over … they’ll all go, ‘Wasn’t me.’ ”

Norquist and Coburn collided over the issue earlier this year. But Coburn soldiered on, bringing credibility to his position many have compared to President Nixon’s trip to China.

The ethanol tax credit provided a glint of a breakthrough for Coburn. But other tax breaks are more complicated. For example, an oil company tax break long in the crosshairs of Democrats also applies to countless other industries nationwide.

Even more politically fraught are tax breaks for individual earners: tax-free employer-sponsored health benefits, the tax-deferred 401(k)-style retirement accounts, and the sacred mortgage interest deduction.

Republican congressional leaders have flatly declared that taxes will not be on the table during the summer’s negotiations over increasing the nation’s $14.3-trillion borrowing limit.

But proposals to raise revenue are being pushed onto the table over GOP resistance.

Both the Obama administration and congressional Republicans want to streamline the tax code, an issue that could come be up for debate later this year or next.

Donald Marron, director at the nonpartisan Tax Policy Center, said an Obama administration proposal to cap all itemized deductions for wealthy Americans at 28%, rather than 35% as is now the case, could carry a less toxic political sting.

“There’s a growing recognition across the political spectrum that there are some things that really are spending programs that are structured as tax cuts,” Marron said. “The challenge, particularly on the right, is how to get them comfortable to say that in public.”

But the truth is that the public relations problem is not only on the political right. The nomenclature is so intricate that it has become fodder for late-night television jokes. Jon Stewart of “The Daily Show” recently mocked as Orwellian the president’s pledge to “make spending reductions in the tax code.”

That episode brought a friendly but pointed rejoinder from fan Leonard Burman, an economist and the cofounder of the Tax Policy Center who is a professor at Syracuse University, on his blog “The Impertinent Economist.”

“For 40 years, tax geeks like me have been trying to explain,” he wrote, “that there’s a boatload of spending programs masquerading as tax cuts.”

lisa.mascaro@latimes.com