Fiscal Cliff Compromise: Devil Is In The Definition Of Revenue

A grand bargain, a compromise to avert the so-called fiscal cliff, could all come down to one word: revenue. It's now widely agreed that steering away from the cliff — the combination of spending cuts and tax increases set to hit at the start of the year — will require some combination of revenue increases and spending cuts. The central sticking point could well be whether President Obama and Congress can agree on the definition of revenue.

At the moment, the casual observer could easily get the sense that the president and Republicans in Congress are talking past each other.

"I think there's a growing consensus — a consensus that has long existed, but growing now in places that weren't always fertile for growth, that we have to do this in a balanced way and that revenue has to be part of it," White House spokesman Jay Carney said Monday.

Meanwhile, Senate Minority Leader Mitch McConnell, R-Ky., said on the Senate floor Monday that Republicans have stepped out of their comfort zone by agreeing to talk about revenue.

"We've been open to revenue by closing loopholes as long as it's tied to spending cuts and pro-growth tax reform that broadens the base and lowers rates," he said.

Talk Of Compromise

Now, the translation: When White House officials talk about revenue, they mean allowing the Bush-era tax cuts to expire for the wealthy. Under the president's definition of revenue, the richest 2 percent would see their top tax rate rise to 39 percent, and he'd also limit deductions and cut out loopholes. That's simply not what McConnell and many of his fellow Republicans mean.

But at this point in the negotiations, no one is saying that — at least not publicly. Instead, there's been a lot of talk of compromise from lawmakers like Senate Majority Leader Harry Reid, D-Nev.

"I remain optimistic that when it comes to our economy and when it comes to protecting middle-class families from a whopping tax hike come Jan. 1, that Democrats and Republicans will be able to find common ground," he said Monday.

Opposition To Tax Increases

The ability to find common ground may depend on just one man's definition of revenue — a man not in the White House or the Capitol. He's anti-tax lobbyist Grover Norquist, and he's gotten the vast majority of Republicans to sign a pledge saying they will oppose any and all tax increases. A few signatories have recently come out saying they won't be bound by the pledge, but Norquist made it clear Monday on Fox News that they do so at their own peril.

"We could ask President Bush, George Herbert Walker Bush, how his second term went after he broke his pledge," he said.

Those comments might explain why many in Washington are brainstorming ways to raise revenues without, strictly speaking, raising tax rates. Those ideas include capping deductions for the wealthy, more broadly limiting deductions, and possibly even making the wealthy pay the top tax rate on every dollar they earn.

David Kamin, an assistant professor of law at New York University, was involved in last year's debt-ceiling negotiations as a special assistant to the president.

"It's a possible place where people could maybe get to a compromise. It's also a classic move," Kamin says, "where one side says they don't want to increase the statutory rate, but the other side says maybe there's a way we could kind of do it in a different way that doesn't increase the statutory rate but gets us to the same place."

Falling Over The Fiscal Cliff

He says it's both mathematically and politically impossible to get all the revenue needed through closing loopholes and capping deductions while also lowering rates, which is what Republicans are calling for.

But unlike last year's debt ceiling negotiations, Democrats are the ones with the ultimate trump card, says Rep. Chris Van Hollen, D-Md., a member of the House Budget Committee.

"If they don't put any additional revenue on the table, the fiscal cliff is going to deliver more revenue than anybody wants," he says.

That revenue will come from automatic tax increases on just about everyone — if Congress and the president don't work something out by the end of the year.