Sen. Chuck Schumer (photo: Talk Radio News)

Schumer lobs volley at Dick Durbin and Bowles-Simpson

Chuck Schumer, the third-ranking Democrat in the Senate and basically the avatar of the Democratic messaging operation, just gave a speech to the National Press Club about the expectations for tax policy in the lame duck session. And he basically rejected the emerging bipartisan approach to lower tax rates and “broaden the base” by closing loopholes.

In a speech to the National Press Club, Mr. Schumer said he rejected the idea of a tax code overhaul as “little more than happy talk.” Taxes, he said, could not be changed to bring in more revenue, lower the top tax rates and still protect the middle class from tax increases.

Instead, he said that the top two income tax rates should be frozen, and any additional revenues generated by closing loopholes and curtailing or eliminating tax deductions and credits should be devoted to deficit reduction.

“It is an alluring prospect to cut taxes on the wealthiest people and somehow still reduce the deficit, but you can’t have your cake and eat it, too,” Mr. Schumer said. “The reality is, any path forward on tax reform that promised to cut rates will end up either failing to reduce the deficit or failing to protect the middle class from a net tax increase.”

This is a big deal. Prior to this point, the expectation was for Democrats to accommodate the Republican desire to cut tax rates by using the closure of loopholes to raise overall revenue or at least keep the reform revenue-neutral. This would have worked for about the first five minutes after the deal, and then Congress would go back to its usual practice of carving out tax breaks for selected interest groups, defeating the purpose of base-broadening. That’s what happened with the 1986 tax reform; eventually, the loopholes worked their way back into the system. Schumer basically called BS on this today. He said that rates could not be dropped, and that Democrats would not maintain the fiction that lower rates would lead to higher revenue.

I believe what Schumer meant by “freezing” the top two income tax rates is that he would freeze them at the level after the expiration of the Bush tax cuts above $250,000. Schumer voted for the successfully passed bill in the Senate that allowed those rates to expire.

This is a major blow against Bowles-Simpson, which cut tax rates as low as 23% for the top earners, dependent on the elimination of certain tax expenditures. It also lobs a volley in the direction of Dick Dubrin, part of the “Gang of Eight” of Democrats and Republicans which has been working on a grand bargain that included rate-lowering, base-broadening tax reform. Schumer typically speaks for the Senate Democratic leadership, and he’s basically calling that kind of tax reform a dead letter.

But there’s a giant caveat to all of this, based on the excerpts (haven’t yet found the full speech):

But he says that Republicans should be drawn to such a deal by the prospect of a bipartisan bargain that also includes changes to improve the sustainability of entitlement programs. Those programs – such as Social Security and Medicare – are expected to run substantial shortfalls in the future, adding dramatically to budget deficits.

“The lure for Republicans to come to the table around a grand bargain should be the potential for serious entitlement reform, not the promise of a lower top rate in tax reform,” Mr. Schumer is expected to say, according to excerpts of his speech.

So Schumer wants to trade unworkable “tax reform” for deeply unpopular “entitlement reform.” That’s not really a great trade. It’s good to acknowledge that tax reform will never work the way its most passionate advocates suggest. But if that doesn’t exist as a “get” for Republicans in a grand bargain, and entitlement cuts are the substitute, we have a whole different problem.

I would humbly suggest that there’s no reason for a grand bargain, rejecting Schumer’s premise entirely, especially amidst a global slowdown where fiscal supports continue to be necessary.

UPDATE: I think Atrios makes a fairly strong point here. Yes, Republican tendencies on a grand bargain trend toward giving loot to Wall Street through privatization or giving loot to the rich through tax cuts. The only GOP tampering with social insurance programs over the last decade was to add a prescription drug program to Medicare (albeit one that involved a form of privatization through stopping bargaining for lower prices and enhancing Medicare Advantage, the private alternative to Medicare). They ran ads in 2010 assailing Democrats for cutting Medicare. They care more about the tax cuts and the privatization than anything else. The chances of no grand bargain at all definitely increase with this move by Schumer.

The power play against Durbin – his roommate in Washington – is fascinating.