What is a tax increase?

WASHINGTON-With a deadlocked so-called supercommittee on deficit reduction only days from its deadline, Senate Majority Leader Harry Reid expressed dismay on Nov. 15 that the panel seemed far way from any agreement. The Nevada Democrat was hoping, he told reporters, for "a lot of hand holding and hugs and pats on the back and we'd head off to Thanksgiving."

But Reid knows better about the ways of Washington. Even in a congressional session with a theme of deficit reduction, spring and summer showdowns over the budget yielded more drama than significant results. Both parties kicked down the road the hard work of government reduction, leaving it to this 12-member panel to make a $1.2 trillion deficit deal by Nov. 23 and achieve the fiscal breakthrough that has eluded President Barack Obama and House Speaker John Boehner.

So Reid and others were not really surprised when the committee produced more headlocks than handholding, with Republicans calling for spending cuts and Democrats wanting tax increases. But what has been surprising is who has been most willing to compromise. With Obama blaming Republicans for continuing "to stick with their rigid positions rather than solve the problem," a growing number of Republican lawmakers are the ones showing flexibility.

Sen. Pat Toomey, a Republican from Pennsylvania and a panel member, laid on the table a plan that would include $300 billion in increased tax revenue. Boehner, who insisted at the panel's birth that tax increases were "off the table," even publicly endorsed Toomey's plan as a "fair offer." The reason? It would raise tax revenues but not tax rates: Most of the new tax revenue would come from reforming the tax code to limit deductions for high-income earners, and the plan would include cutting the top tax rate from its current 35 percent to 28 percent.

Rep. Jeb Hensarling, R-Texas, explained to skeptical House Republicans in a closed-door meeting on Nov. 15 that this significant shift would help offset the pending expiration of the tax cuts enacted under President George W. Bush. The scheduled Jan. 1, 2013, end of those tax cuts will raise the top tax bracket rate to 39.6 percent. Hensarling argued that tax increases through limiting deductions would be a good trade-off for lower overall rates.

"They haven't thrown me out, so I guess I got a good reception," Hensarling told reporters after the meeting.

This tax concession impressed at least one Democrat. "The fact that some Republicans have stepped forward to talk about revenue, I think, is an invitation for Democrats to step forward and talk about entitlement reform as well as spending cuts," said Sen. Dick Durbin, D-Ill. "Therein lies the core of an agreement."

This advice fell on deaf ears. Democrats on the supercommittee have been unwilling publicly to lay significant entitlement reform on the table. Instead, several Democrats on the panel admitted they are not unified. "The fact of the matter is, Democrats have not coalesced around a plan," said panel member Rep. James Clyburn, D-S.C.

Democrats may not want to endanger their main campaign narrative of championing entitlements. Any supercommittee plan endorsed by Democrats to cut or reshape Medicare and Social Security would put Democrats on the defensive on the 2012 campaign trail. The victim of this strategy could be the supercommittee. "It's been a long week waiting for a counterproposal," said Senate Republican Leader Mitch McConnell of Kentucky.

Regardless of the supercommittee's endgame, the legacy of this debate could be the fraying of Republicans' long-held stand on taxes. Republican leaders have spent November trying to reframe the argument by favoring lower tax rates and the elimination of certain tax deductions.

"It is important for us to, in my opinion, reform the tax code," Boehner said. "We've got the highest business tax rate in the world. We've got a personal tax system that's so complicated it costs Americans about $500 billion a year to comply with the current tax code. And I think that reforming taxes, both on the business side and personal side, will make America more competitive and produce more economic growth."

This break from a two-decade-old party orthodoxy has also occurred outside the supercommittee. Sen. Tom Coburn, an Oklahoma Republican with a record as an opponent of tax hikes, released a report Nov. 13 arguing that, through the current tax code, the federal government annually provides nearly $30 billion of tax giveaways to millionaires. The report stated that eliminating these deductions for millionaires would reduce the deficit by $285 billion over the next decade.

"From tax write-offs for gambling losses, vacation homes and luxury yachts to subsidies for their ranches and estates, the government is subsidizing the lifestyles of the rich and famous," Coburn said. "Multimillionaires are even receiving government checks for not working."

Such surprising positions will not come without consequences. Nearly every congressional Republican (including all but six in the House) has signed the Americans for Tax Reform's "taxpayer protection pledge." This pledge includes opposition to ending any tax breaks unless it's combined with rate cuts elsewhere. The group, arguing that any revenue increases always lead to future spending increases, promises to hold the pledge-breakers accountable.

Signing this pledge has been as routine as filing to run for most Republican candidates over the years. But already some Republicans this fall are taking the unprecedented step of pushing back. "I believe how the pledge is interpreted and enforced ... is a roadblock to realistically reforming our tax code," said Rep. Frank Wolf, R-Va., recently on the House floor.

Still, not all Republicans are willing to put tax changes on the table. "It is about commitments that people make to the electorate that they represent, to the people that sent them here," said Rep. Eric Cantor, who as Republican majority leader is one of Boehner's top lieutenants in the House. "So again, your words should be good to your constituents, and that is what we are dealing with here."

From within the Republican leadership to the rank and file, the gauntlet has been thrown down over taxes. The result could create a fierce intraparty showdown among conservatives heading into next fall's elections.