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Romney announces opposition to tax deal, in major blow to GOP’s united front

Posted By Jon Ward On 2:06 AM 12/14/2010 In Blog - Jon Ward | 53 Comments

Republican presidential hopeful Mitt Romney on Tuesday came out against the tax deal reached between President Obama and congressional Republicans, saying the temporary nature of the tax rate extension would limit the positive economic impact and correspondingly make the deficit worse.

Romney’s move has the potential to spur broader opposition to the deal among Republican lawmakers than has previously been seen, and is clearly intended by the former Massachusetts governor as a play for support from Tea Party and grassroots conservatives.

“What some are calling a grand compromise is not grand at all, except in its price tag,” Romney wrote in an op-ed published by USA Today. “The total package will cost nearly $1 trillion, resulting in substantial new borrowing at a time when we are already drowning in red ink.”

Romney argued that while “in many cases, lowering taxes can actually increase government revenues,” because the extension of current tax rates is only for two years, the economic growth that would have been created by a permanent extension would fall far short of producing the kind of tax revenues needed to reduce the deficit and debt.

“While the tax deal will succeed in temporarily putting more money in the hands of consumers, it will fail to deliver its full potential for creating lasting growth,” Romney wrote.

Romney also staked out an unmistakably hard line conservative position on unemployment benefits, which the tax deal would extend for 13 months. While he acknowledged that joblessness can produce “heartbreak,” he said that longer term government benefits “actually serve to discourage some individuals from taking jobs, especially when the benefits extend across years.”

He proposed to establish “employment savings accounts” to replace government-provided benefits. And he took clear aim at the component of the deal that is most egregious to many conservatives: the unpaid for unemployment insurance spending.

“In spending $56.5 billion to extend benefits, the deal is sacrificing the bedrock Republican principle that new expenditures be paid for with offsetting budget cuts,” he said.

Prior to Romney’s bombshell on Monday, House leaders from both parties told The Daily Caller that the tax deal would clear the House as soon as the end of this week by a relatively slim margin, with a margin for error of roughly 20 votes or so.

The Senate voted overwhelmingly, 83 to 15, to end debate on the measure and move toward a final vote on passage, which will take place either late Tuesday or Wednesday morning.

In the House, the measure needs 218 votes to pass. Key Democrats and Republicans estimated that combined they will have about 240 votes.

House Democrats told TheDC they expect to have about 100 votes in favor of the measure, which is far less than half of the 255-member caucus. House Republicans are expected to support the measure in far greater numbers, with only between 20 and 40 of their 179 members voting against it, a knowledgeable Capitol Hill Republican said.

But if 40 House Republicans do turn against the bill, and support for the deal erodes with House Democrats under the 100-vote mark, the bill could potentially land in some hot water.

That scenario is now far more likely thanks to Romney’s break with the agreement.

If House Democrats change the estate tax provision of the deal, it could further endanger the measure. The decision to put the tax at 35 percent with an exemption for estates under $5 million has drawn the ire of House Democrats since the deal was announced last week, and Rep. Chris Van Hollen said Monday that his party wants this portion tweaked.

Democrats want to move the tax rate up to 45 percent and the exemption threshold down to $3.5 million. But it is unknown whether they would have enough votes to pass such an amendment, especially since such a change could torpedo the bill by pushing House Republicans away from it.

“The ‘framework’ was a very carefully crafted package, and that was what Republicans were willing to vote for,” said a House GOP leadership aide. “If it gets loaded-up with green pork in the Senate or the House Democrats change the estate tax provisions then I think Republicans will have a tough time voting for it and it could go down.”

Senate Minority Leader Mitch McConnell, Kentucky Republican, issued a similar warning after the Senate voted Monday.

“If the House Democratic Leadership decides to make partisan changes, they will ensure that every American taxpayer will see a job-killing tax hike on January 1st,” McConnell said on the Senate floor.

The White House is also not likely to favor any changes to the estate tax provision, given Obama’s focus on passing an extension of the current tax rates to avoid increases.

“I urge the House of Representatives to act quickly on this important matter,” Obama said late Monday. “If there’s one thing we can agree on, it’s the urgent work of protecting middle-class families, removing uncertainty for America’s businesses, and giving our economy a boost as we head into the new year.”

In the House, most questions about support for the tax deal have focused on liberal Democrats, and key House Republicans have told TheDC that they will likely swallow their distaste and vote for the measure.

But opposition to the agreement continued to bubble among conservatives Monday, even before Romney’s editorial went live online late in the day. Conservative radio talk show host Hugh Hewitt dubbed the agreement “Stimulus II.”

“The bill has evolved from a not-very-good-deal-to-avoid-a-tax-hike plus an extension of unemployment benefits into a giant exercise in wasteful spending, and thus support for it should end,” Hewitt wrote. “The new Congress — the one embodying the people’s demand for spending restraint and continuation of existing tax rates — can get the job done in the new year.”

The Tea Party Patriots, a national grassroots group, doubled down on its opposition to the measure, with the group’s leaders making their first comments on the bill and calling it a “back room deal.” Rush Limbaugh, the influential conservative radio talk show host, already said on Friday that he hopes the bill fails.

It is these very types of conservatives that Romney’s announcement in opposition to the tax deal seems designed to appeal to. Romney’s position will likely be hailed as a sign of serious and substantive conservative thinking, along with a willingness to take hard positions that might be unpopular.

Romney is the first likely GOP presidential candidate to stand up against the tax deal. Former Alaska Gov. Sarah Palin was vaguely critical of the deal last week but when asked for a yes or no position on it late last week, a spokeswoman declined to comment.

Further aiding Romney, Moody’s Investors Service issued a warning Sunday that the bill’s nearly $1 trillion price tag – most of which comes from tax cut or tax exemption extensions – would move the U.S. closer toward receiving a downgrade of their AAA credit rating.

“From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth,” said Moody’s analyst Steven Hess.

Former Reagan White House budget director David Stockman said that the deal didn’t make “any sense at all.”

“Everybody’s going to be sacked with higher taxes to pay for this enormous deficit that we’re doing nothing about,” he said in an interview with the Wall Street Journal. “Our problem now is we’re buried in debt … By waiting and creating another round of uncertainty … we’re only kicking the can down the road.”

This has been the critique of Republican lawmakers such as Sen. Tom Coburn, Oklahoma Republican, who voted against proceeding to a final vote on the bill Monday.

There was some defense of the tax deal from conservatives Monday. Keith Hennessey, a former top economic adviser to President George W. Bush, went through criticisms from conservatives one by one, pushing back on each.

“If I tally ‘things I really like’ and ‘things I can accept’ and compare them to ‘things I don’t like,’ the numbers look good to me. Not great, mind you, but good. And for a divided government this looks to me like a great deal,” Hennessey wrote.

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