Stealth Tax Increase

WASHINGTON — The 42 senators and 196 House members who have signed a no-tax-increase pledge received a stern warning last Wednesday from Grover Norquist’s Americans for Tax Reform (ATR): If you vote for Amendment 2548 to the Democratic-sponsored expansion of SCHIP (State Children’s Health Insurance Program), you will violate your solemn promise. However, Amendment 2548 is not the product of tax-and-spend liberals but of conservative lawmakers and policy experts.

Sen. Richard Burr, a first-term conservative Republican from North Carolina and principal sponsor of 2548, pulled it off the floor Thursday night as SCHIP expansion passed the Senate, 68 to 31. The conservative movement is split over Norquist’s warning, with two right-wing think tanks at each other’s throats. Sponsors of the Burr amendment are furious that they are being depicted as tax-increasers when they claim they are fighting a movement toward "socialized medicine" in America.

This disarray on the right is part of a broader conservative breakdown. SCHIP passage, with notable Republican support, means the Democrats — 12 years after the failure of "Hillary care" — have figured out how to market a government-financed plan. The quarrel over the Burr amendment reflects not only a failed Republican reaction to big government but also a weakening of GOP resolve to hold down taxes.

SCHIP, conceived to provide health insurance to poor children, in its new incarnation extends to adults with salaries 300 percent or more of the poverty level. Opposition in the House and Senate triggered denunciations of heartless Republicans with no compassion for poor and ailing "kids." In Thursday night’s vote, 18 Republicans — including nine up for re-election — crossed party lines to join a solid Democratic phalanx.

The conservative alternative was individual employee health insurance, and a bill providing that was prepared for introduction by Republican Sen. Jim DeMint of South Carolina. Norquist informed DeMint that his bill, by reducing current employer deductions for health care, was scored as an $800 billion tax increase. Told by Norquist that this could be fixed by attaching a tax cut to the bill, DeMint then added a section repealing the Alternative Minimum Tax (AMT). On July 25, Norquist wrote DeMint a congratulatory letter calling his bill "a model of what conservatives should be for when it comes to health care reform" and "does a lot of good without raising taxes."

But Sen. Tom Coburn of Oklahoma, DeMint’s partner in fighting earmarks, did not buy this solution. Coburn denied that the health care alternative constitutes a tax increase. Furthermore, he wants to save the repeal of AMT, the favorite Democratic tax cut, for later when Republicans might get something in return. Coburn joined with Burr and other GOP senators, Mel Martinez of Florida (the Republican Party’s general chairman) and freshman Bob Corker of Tennessee, in a new proposal.

The Burr amendment would balance the tax increases with a refundable tax credit for lower bracket taxpayers — that is, a cash payment. That meets long-standing concerns at the conservative Heritage Foundation about how low-income Americans could take advantage of individual health insurance accounts. But refundable credits — such as the Earned Income Tax Credit — always have been scored as spending increases, not tax cuts. Thus, the Burr amendment is budget neutral, but not tax neutral.

That triggered last Wednesday’s warning by Norquist about breaking the tax pledge. "Budget neutral isn’t good enough if all it does is balance Washington’s budget at the expense of the family budget," the ATR lectured the senators. The admonition infuriated Tom Coburn as well as Heritage analysts. But the 238 pledge signers (all but five of them Republicans) do not want to get on Grover Norquist’s blacklist.

While Burr says he never intended to bring his amendment to a vote, not doing so Thursday saved Republican senators from embarrassment. But the intraparty dispute suggests the Republican Party has wandered on tax policy. Burr told me his balancing of tax increases with refundable tax credits is "a matter of tax equity," adding that he worries about "this unequal tax system." If "equity" were the overriding concern, there would have been no Ronald Reagan and George W. Bush tax cuts, and Democrats would have won economic debates of the last three decades.