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The Daily Need

Debt ceiling agreement guarantees that Bush tax cuts will be major issue in 2012

President Barack Obama walks back to the Oval Office after speaking in the Rose Garden of the White House in Washington, Tuesday, Aug. 2, 2011, after the Senate passed the debt ceiling legislation. Photos: AP/Carolyn Kaster

The debt-ceiling deal has, for the moment, provided Washington with a brief period of respite. But if you think you’ve heard the last of “discretionary spending” and “entitlement reform,” think again.

The compromise measure etched by President Obama and congressional leaders to raise the statutory debt limit will only prolong the gamesmanship over our nation’s deficit, by setting up a bipartisan “super-committee” tasked with finding an additional $2 trillion in cuts to government spending over the next 10 years. And Republican leaders are quietly making the case to their restive members that the deal has basically guaranteed that the super-committee can’t hike taxes to raise revenue.

How is that? The answer involves an alphabet soup of government agencies and quirks in the tax code, but the gist is this: Any deficit reduction proposed by the super-committee will be measured by the Congressional Budget Office, the agency that estimates how much money lawmakers are actually cutting from the deficit and spits out all the numbers Republicans and Democrats have been bandying about. Republicans say the CBO must measure the super-committee’s proposed cuts against how much money current law requires us to spend — and according to current law, the tax cuts signed into law by President Bush are set to expire at the end of 2012, adding about $3.6 trillion to the nation’s coffers over the next 10 years.

Why does that matter? Well, Republicans think that little accounting trick basically makes tax increases “impossible,” according to Power Point slides released by aides to House Speaker John Boehner. If the law assumes that taxes are set to go back to their Clinton-era levels after 2012, the logic goes, saying you’re going to raise taxes from their current levels doesn’t actually count as “deficit reduction,” since it’s already going to happen. So Republicans contend that the super-committee will have to complete it’s work by the end of the year without raising taxes. And then, come December 2012, when the Bush tax cuts are once again set to expire, Republicans will fight to keep them in place by arguing that Democrats are trying to pass the largest tax increase in U.S. history, as they did when the issue last came up for a vote in 2010.

Democrats and liberal bloggers, however, have dismissed this argument. For one, they say, there’s nothing in the law that requires the super-committee to measure its work against the “CBO baseline.” The committee could decide on its own to measure its deficit reduction proposals against what the wonks call “current policy” rather than “current law” — i.e., what’s in place right now. Since the Bush tax cuts are currently in effect, the super-committee could decide that letting them expire does indeed count as deficit reduction. A White House aide told ABC News that the baseline gimmick “is no obstacle to revenue-raising tax reform. And the President will be making the case that this should be part of a balanced deal coming out of the Joint Committee.”

There’s also another important point, which is that hiking income tax rates isn’t the only way to raise revenue through tax reform. There’s a long list of loopholes buried in the nation’s tax code that, if closed, would help raise hundreds of billions of dollars over the next 10 years. The most notable is the tax break for corporate jet owners, which President Obama has often described as an egregious abuse of the tax code. But there are plenty of others, such as the so-called “carried interest” loophole, which allows hedge fund managers to pay a mere 15 percent of their income, rather than the standard 35 percent, in federal taxes. And then there’s the “mortgage interest tax deduction,” which allows homeowners to write off the interest on their mortgages, even for second or third homes.

Closing those loopholes would count as deficit reduction, even if you measure them against the “current law” yardstick used by the CBO. Perhaps the more important point here, though, is that the debate over whether to raise revenue through tax increases isn’t going anywhere. President Obama still contends that we should raise taxes for the nation’s highest earners as part of any deficit reduction agreement, and Tea Party Republicans still remain adamantly opposed to such a measure.

And the politics of this issue are equally important: Even if Democrats are right and the debt agreement allows them to erase the Bush tax cuts as part of a deficit reduction framework, they might not want to. Polls have consistently shown that Americans support a compromise measure that combines spending cuts with tax increases for the wealthiest Americans. And when the Bush tax cuts came up for a vote last year, Americans were largely in favor of letting them expire for the top two income brackets.

Democrats, it turns out, may yet get another chance to re-litigate the fight over tax increases — a fight they have now lost at least twice.