Debt Ceiling Fate Boils Down To Semantics

With the August deadline on the debt ceiling looming, President Obama and Republicans say they have agreed on a set of spending cuts. The president is insisting that the package include some revenue. The debate seems to center on when is a tax increase not a tax increase. David Wessel, economics editor of The Wall Street Journal, talks to Renee Montagne about Thursday's deficit reduction talks at the White House.

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RENEE MONTAGNE, host:

This is MORNING EDITION from NPR News. I'm Renee Montagne.

The deficit debate between President Obama and congressional Republicans sometimes seems like an argument that boils down to semantics: When is a tax increase not a tax increase?

To make sense of the war of the words, we turn, as we often do, to David Wessel. He's economics editor of The Wall Street Journal.

Good morning.

Mr. DAVID WESSEL (Wall Street Journal): Good morning, Renee.

MONTAGNE: And you know, I've got to ask: Does the fiscal fate of the nation really boil down to the meaning of the words tax increase?

Mr. WESSEL: It seems to. With this August 2nd deadline on the debt ceiling looming, the president and Republicans say they've agreed on a core set of spending cuts. But President Obama is insisting that any deal include some more tax revenues. And at least some of the Republicans are resisting, insisting that our budget problem is a spending problem and not a revenue one.

MONTAGNE: So increased revenues translate to tax increase?

Mr. WESSEL: Well, that's where things get complicated. Republicans are dead set against raising tax rates; that's the additional piece of each dollar of income you get that you have to turn over to the government in taxes. And the president has pretty much surrendered on that point.

But some Republicans - some of the senators, for instance, who are quite concerned about the deficit - certainly not all Republicans - say, okay, we don't want to raise tax rates; but we are willing to eliminate some of the tax breaks, and deductions, and credits and loopholes - sometimes called spending through the tax code - and they say with a straight face that they wouldn't consider these tax increases, even though they would bring in more tax money to the government.

MONTAGNE: Okay, some Republicans would call them tax increases, others wouldn't - so they're willing to compromise or negotiate. If Congress were to eliminate some deductions, credits and loopholes, then the government would collect more revenue. So isn't that an ordinary person's definition of a tax increase?

Mr. WESSEL: Well, you might think so. So just this week, Republicans kind of tweaked the argument a little bit. House Majority Leader Eric Cantor said that I'm willing to do away with some of these loopholes and credits, these things that have been added to the tax code over the years, only if we agree that there'll be some offsetting tax breaks. So on net the government wouldn't collect any more tax revenue than the tax code does now.

But David Plouffe, the president's adviser, said just the opposite, that any deal that the president subscribes to is going to have to include enough tax increases so that on net the government will bring in more money than the tax code. Because otherwise there'll be too much burden on cutting spending and the president will have to sacrifice some of the spending programs that he thinks are really important for the future of the country.

MONTAGNE: Well, given all the controversy over spending cuts - health care, defense, infrastructure - have taxes turned into the final stumbling block in all of this?

Mr. WESSEL: You know, if you'd asked me that question yesterday at this time, I would have said yes. And the reason is that some Republicans want to push the president to the very last minute so they can prove to the rank-and-file that they didn't give in on taxes until there was no other choice. And some Democrats, who desperately want to campaign next year on the case that they protected Social Security and Medicare, don't want to surrender on that talking point unless they can get the Republicans implicated on taxes.

And the president, of course, wants taxes as long as they don't apply to the middle-class.

And a lot of this is posturing because people know this is an argument that's going to go on through the 2012 election. But in the last 12 hours or so, it seems that Speaker John Boehner and President Barack Obama are trying to, instead of narrowing the problem, widen it. And they seem to be talking about putting a whole lot of new things on the table, including some changes to the way Social Security benefits are indexed and stuff like that.

But I think that in the end, one big stumbling block to getting a deal that actually addresses the deficit problem, is going to be coming to terms on whether we raise taxes or not.

MONTAGNE: David, thanks very much.

Mr. WESSEL: You're welcome.

MONTAGNE: David Wessel is the economics editor for The Wall Street Journal, and a frequent guest on this program.

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