'Taxes are off the table': GOP family feud over what that means, exactly

How to lasso the runaway US budget deficit and rein in government debt looks destined to be the signature issue of this Congress. Democrats are willing to raise selected taxes to do it; Republicans are holding firm on their "no new taxes" pledge, insisting that fiscal sanity be restored through spending cuts alone.

But what precisely constitutes a tax increase?

The answer may not be as obvious as it seems, and the ensuing debate is opening a surprisingly public wedge between two GOP icons of fiscal restraint.

Here's the nub of the Republican family feud: Is it ever permissible to end a tax break (or a tax deduction) for an industry or some other subset of taxpayers, without also finding offsets so that government revenues won't rise as a result?

Grover Norquist, of the antitax group Americans for Tax Reform (ATR), says no, period. By his calculus, any repeal of a tax break means more revenue for government, which will always spend it, and less freedom for Americans. For Mr. Norquist, the fight over debt and deficit is a golden opportunity to shrink government and undo much of the 60-year legacy of the New Deal. He insists that this is no time to give Democrats an escape from the deep spending cuts that GOP leaders want.

Sen. Tom Coburn (R) of Oklahoma, famous for attacking lawmakers' "pork-barrel" projects, says some tax breaks are so harmful to consumers and so distorting to the economy that they justify repeal on their own. Exhibit A, he says: the $5.6 billion annual tax credit for refiners to blend ethanol into gasoline. "You're paying $1.72 per gallon in tax credits that have gone to the industry, but you're paying for it later – or, rather, our kids are paying it later," says Senator Coburn. End the credits, and energy and food prices drop, and the savings to government help bring down the deficit, he says.

Coburn's formula could help break a deadlock over how to reduce the federal deficit by trillions of dollars – in time to avoid a default on the national debt, expected by Aug. 2. It would put some tax breaks on the table for negotiation.

"If we get rid of these misdirected tax credits, we can help grow the economy and significantly enhance government revenues," Coburn says. Not to include this option is to risk "fiscal disaster."

Democratic lawmakers, for their part, call for raising the tax rate for millionaires and cutting unpopular tax breaks, such as $21 billion in taxpayer help for the top five oil companies over the next 10 years.

So far, GOP House and Senate leaders aren't siding with Coburn. They say everything is on the table except taxes. In taking that stance, they are standing firm on the Norquist "taxpayer protection pledge," which for a quarter-century has been a rallying point for Republican lawmakers to oppose all tax hikes and that, if violated, could spell electoral doom for the transgressor.

But some conservatives on and off Capitol Hill say they support Coburn's approach on the ethanol subsidy – and even more broadly.

Not all tax breaks are good ones, says Sen. Roger Wicker (R) of Mississippi. "Congress ought to be able to pick and choose the ones to eliminate without being accused of hiking taxes," he says.

Sen. Jim DeMint (R) of South Carolina, founder of the Senate's Tea Party Caucus, says ending that ethanol subsidy would amount to a tax cut for everyone else. "Mr. Norquist says that violates the pledge," he says, "but when you look at what tax-payers have to pay [in higher food and energy costs], it's a tax reduction."

The clash between the two fiscal watchdogs has come as a surprise. Coburn, a physician who prefers to go by Dr. Coburn, was a firebrand during his three terms in the House, known for his assault on earmarks and farm subsidies. When he was elected to the Senate in 2004, liberals expected he would grind the institution to a halt with obstructionist tactics. Instead, Coburn has on occasion worked with Democrats, as he did in teaming up with then-Sen. Barack Obama on landmark legislation on transparency in government. In December, he surprised conservatives by voting in favor of the final report of President Obama's deficit commission, which included some trillion dollars in tax hikes. He said the severe fiscal crisis calls for compromises.

Norquist helped organize a diverse conservative movement back in 1985 around the theme that less government and lower taxes equal more freedom for Americans. His Wednesday morning meetings at ATR headquarters here became must-stops for conservative activists, lobbyists, and GOP politicians. But his most lasting legacy is the taxpayer protection pledge.

When Coburn last month called for eliminating tax breaks for ethanol refiners – without identifying matching tax cuts so as to prevent a net gain in government revenues – Norquist saw red.

"Coburn is the single Republican most in the way of reducing spending in the US today, and he doesn't understand that," says Norquist, who wrote Coburn to warn him against violating the antitax pledge. "The entire House Republican leadership is saying: No tax increase, ever, ever, ever.... The only one 'out there' is Coburn, and it's getting lonely out there."

Not that lonely, it turns out. Coburn has won quiet support from diverse groups on the right, including the Heritage Foundation think tank, The Wall Street Journal editorial board, the Economist, some conservative bloggers and, less publicly, some GOP members of Congress.

"If instead of subsidizing ethanol, we let the market determine the flow of investment dollars to the most useful ends, we believe that growth is going to come by it," says Michael Franc, vice president for government affairs at the Heritage Foundation. "Norquist says it's an impure thought and a violation of the taxpayer pledge. For Grover, once you put it in the tax code, it gets holy status."