Congressional Quarterly reported yesterday that Democrats, led by Representative Chris Van Hollen (D–MD), are pushing to use “tax overhaul” as a means to cut a deal to increase the debt ceiling by $2.4 trillion:

Van Hollen also revealed that Democrats on the panel have “put a whole menu of options on the table” to eliminate corporate tax breaks, which so far have not been accepted by Republican members. The proposals include repealing tax breaks for the oil and gas industry, corporate jets and private jets, he said. “It’s a whole range of special interest tax earmarks in the code,” he added.

Conservatives want to get rid of those special interest tax breaks as part of a revenue-neutral comprehensive tax reform, not as a means to get more money for free-spending politicians to waste. It is good tax policy to rid the tax code of distortions that favor one sector of the economy over another, yet it is bad tax policy to remove every single distortion as a means to raise money for a federal government that has already spent us into a $14.3 trillion hole.

The federal government can’t be trusted with new revenues, because they will find new programs to spend it on. Congress has yet to conduct a comprehensive scale-back of programs that waste money. Just look at Senator Tom Coburn’s (R–OK) numerous reports showing the rampant waste coming from Washington, D.C.:

These reports are strong evidence that our federally elected officials have let us down on fiscal responsibility.

Liberals are spinning a vote on an amendment by Senator Coburn as an implicit endorsement of the idea that repealing all tax credits for corporations, without offset cuts to overall taxes, are an acceptable as a means to balance the budget:

Strong Republican support for a Senate bill that would repeal tax credits for ethanol “was a very important signal that Republicans were willing to get rid of special interest tax breaks for the purpose of deficit reduction,” Van Hollen said. The Senate defeated a motion to shut off debate to consider the measure, introduced by Tom Coburn, R-Okla.

The vote on the Coburn amendment is more complicated than Van Hollen admits. Coburn offered an amendment (S. Amdt. 436) to S. 782, the Economic Development Revitalization Act of 2011, to repeal the Volumetric Ethanol Excise Tax Credit. Coburn then filed cloture on the amendment in an effort to get a vote on it, but the cloture motion was defeated 40–59. That vote could be considered merely an effort by conservatives to commence a debate to repeal a special interest tax earmark, not an endorsement of the idea of repealing all corporate special interest tax provisions without offsets.

An elimination of this ethanol excise tax credit that may remove a special interest tax provision from the code is a good development. But it would be a tax hike on the American people if not offset by an across-the-board tax cut or a reduction in a specific unfair tax.

As Heritage’s J. D. Foster explains, a tax hike occurs when one changes tax law and it results in higher revenues:

A tax hike occurs when, as a consequence of a change in the tax law, total tax receipts are projected to be higher than they would be under current policy using traditional quasi-static scoring employed by the Treasury Department and by the congressional Joint Committee on Taxation. This change in the tax law may arise because of new legislation or because (through inaction) Congress allows existing tax provisions to expire.

The Coburn amendment would have been a tax hike if not offset. Coburn would argue that this tax provision is a distortion to the tax code and a special interest “tax earmark.” He is correct, yet many conservatives want to see this provision and other distortions to the tax code removed through tax reform without raising revenues for the federal government under the standard static scoring system used by the federal government.

Foster cites the Bowles–Simpson plan as a great example of “tax reform” being used as cover for a sneaky tax hike:

The Bowles–Simpson plan proposed tax reform based on eliminating all so-called tax expenditures. It then wisely reduced tax rates. However, it used only part of the revenue increase from eliminating tax expenditures for rate reduction, using the balance of the revenue increase to reduce the budget deficit. The plan was very clear about this. Page 25 of the report states that the commission proposes tax reform that relies on “zero-based budgeting” by eliminating “all income tax expenditures (but maintaining the current payroll tax base, which should be modified only in the context of Social Security reform), and then using the revenue to lower rates and reduce deficits.” Using traditional scoring, a tax proposal can reduce budget deficits only if it raises aggregate tax receipts. The Bowles–Simpson exercise was mislabeled. It is not tax reform; it is a tax-hiking exercise in tax reform garb, a common ruse of tax hike proponents.

Senator Jim DeMint (R–SC) had filed an amendment (S. Amdt. 460) to offset the Coburn repeal of the tax credit with a repeal of the death tax. That amendment would have made the Coburn vote revenue neutral and consistent with the idea that repealing tax provisions should not be done as a means to increase revenues.

Heritage’s Curtis Dubay specifically called out the “extension of income tax credits and excise tax credits for ethanol” to be “scrapped without hesitation.” Coburn’s heart is in the right place to get rid of this special interest tax provision for a small sector of the economy, yet it should be done in a revenue-neutral manner so that conservatives don’t feed the beast of government with more and more revenues to waste on programs such as the National Endowment for the Arts, a failed stimulus, and Obamacare.

The bottom line is that any tax increases, or a version of a “Debt Failsafe Trigger,” would be a disaster for the conservative movement and taxpaying Americans.

Update (3:20 PM ET 6/16/11):

The Hill reports that Senator Dianne Feinstein (D-CA) just passed an amendment identical to the Coburn Amendment on a 73-27 vote.

The Senate voted 73-27 Thursday to kill a major tax break that benefits the ethanol industry, handing a political win to a bipartisan group of lawmakers that call the incentive needless and expensive.  The vote also could have ramifications on future votes to reduce the deficit. Much of the GOP conference supported Feinstein’s bill even though it does not include another tax break to offset the elimination of the ethanol tax credit.

ATR put out a release applauding the vote and urging lawmakers to adopt Senator DeMint’s amendment to repeal the Renewable Fuel Standard (the mandate) and to eliminate the death tax.

Sen. DeMint’s amendment repeals the real policy distorting the energy market — the Renewable Fuel Standard (the mandate)—and eliminates the death tax. The tax cut contained within the DeMint amendment overwhelms the Feinstein/Coburn tax hike allowing Taxpayer Protection Pledge signers to freely vote to eliminate the ethanol tax credit and tariff so long as they also vote for the DeMint amendment. Again, as long as Taxpayer Protection Pledge signers that voted for the Feinstein/Coburn amendment also vote for the DeMint amendment, they will be in keeping with the Pledge they made to their constituents. Taken together, this elimination of favoritism toward ethanol is not a violation of the Taxpayer Protection Pledge.

The left would be making a big mistake if they argued that this vote is evidence of a willingness on the part of conservatives to allow tax increases to be included in a debt limit increase.  This vote does not translate into the left wing talking point that Republicans are willing to increase the tax burden on the economy to buy some cuts to spending programs.

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