With Help of Prominent Democrat, Debt Limit May Be Tied to Tax Reform

Some Republican leaders are looking at the possibility of tying the next increase to the nation's debt limit to tax reform. While most Democrats and President Barack Obama balk at the idea, Republicans may get the support of Sen. Max Baucus (D-Mont.). Baucus has long wanted to reform the nation's bloated tax code, but, since he recently announced he will retire at the end of 2014, this may be his last shot.

"You'd better be ready to work. I'm doubling down," Baucus told a tax reform panel the day after he announced his retirement, according to National Journal.

Baucus chairs the Senate's Finance Committee, which would oversee any rewrite of the tax code. On the House side, the tax code is managed by the Ways and Means Committee, which is chaired by Rep. Dave Camp (R-Mich.), who Baucus reportedly has a close working relationship with.

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According to The Hill, Baucus and Camp have already discussed the possibility of making a debt limit increase contingent upon reforming the tax code. While all the other Democratic leaders have backed the President's view that there should be no requirements placed upon the nation's debt limit, Baucus has not taken a public position on the issue, leaving Democrats to wonder if he is with them or in the Camp camp.

One of the biggest stumbling blocks for passage of tax reform will be the question of revenue. Republicans say they only want tax reform that is revenue neutral, meaning that tax rates will be lowered while deductions and credits are eliminated such that no additional revenue will flow to the U.S. Treasury. Democrats want the reforms to increase revenue to lower the debt or pay for other government programs (the Affordable Care Act has already shown signs that it will cost more than promised.)

There are also discussions underway on a "grand bargain" deficit reduction plan that would both reform entitlements, to reduce the long term rate of growth in government spending, and reform taxes, to remove tax preferences and increase revenue. In the Summer of 2011, House Republicans insisted on spending cuts as part of an agreement to raise the debt limit. Speaker of the House John Boehner (R-Ohio) and Obama were in negotiations on a grand bargain at that time, but those talks fell through.

In January, Republicans agreed to a temporary suspension of the debt limit in return for passing "No Budget, No Pay," which required the Senate, after four years with no budget, to finally pass a budget. The next debt limit increase will likely be needed in October.

The national debt is currently over $16.8 trillion with close to $124 trillion in unfunded liabilities.

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