The Fiscal Cliff: Rep. Chris Van Hollen

chris van hollen

Chris Van Hollen is the U.S. Representative for Maryland’s 8th Congressional District, serving since 2003. He is the ranking member on the House Budget Committee and a leading Democratic negotiator on deficit reduction. In 2011, he was appointed to the 12-member bipartisan Committee on Deficit Reduction, colloquially referred to as the “supercommittee.” 

The Politic: What do you think would be the economic consequences of the spending cuts to go into effect?

If we went over the cliff and stayed over the cliff, it would have a very negative impact on our economy. It would essentially mean withdrawing about 500 to 600 billion dollars from the economy to an economic slowdown. But there’s a distinction between fully going over the cliff, and going over for a few days and clawing our way back. We are working very hard to prevent going over the of proposals on the table to prevent us from going over the cliff, including the proposal the president has put forward.

The Politic: As the ranking member on the House Budget Committee, are you optimistic about the ongoing negotiations?

I’m optimistic about the tone that has been set. The jury’s still out when it comes to the substance of the Republican proposals. Speaker Boehner set the right tone, but until we see the specifics of his proposal, it’s hard to know whether there is a genuine willingness to compromise.

The Politic: With so many Republicans signing on to Grover Norquist’s “no new taxes” pledge, do you see a real possibility of reaching a “balanced” solution that includes both revenue and spending?

98 percent of House Republicans have signed a pledge not to raise one penny of revenue to reduce the their proposal before passing judgment on the likelihood of success. Everyone’s expressing good intentions. The president has done more than express good intentions, because he’s actually put his plan on the table for the public to see. With respect to Speaker Boehner’s plan, all we’ve heard is very general statements that can be interpreted in many ways.

The Politic: Most Republicans have voiced opposition to tax rate increases, but seem to support phasing out or capping tax deductions. Do you think it is necessary to raise top marginal tax rates, or can we raise the necessary revenue just through fundamental tax reform? 

To be clear, the pledge prohibits those members from raising revenue by revenue by eliminating preferences and what some Republicans have said in the past, that just by lowering tax rates can generate enough additional revenue, which has just been proven false. With respect to revenue from closing loopholes, the issue is whether we can attain enough revenue to achieve a balanced math works. When you look at the [bi-partisan] Simpson-Bowles framework, dor example, they have a total of a trillion dollars of revenue over the next 10 years embedded in their deficit reduction numbers. It’s very difficult to achieve those levels of revenue if you start by freezing the top rate. My view is that we should allow the top rate to return to Clinton-era levels, and then we can discuss tax reform from there.

The Politic: Didn’t the Simpson-Bowles plan raise the additional trillion dollars of revenue without lowering marginal rates, and rather by eliminating deductions and broadening the base?

The measure of a good deficit reduction plan is the extent to which it lowers the deficit as a percentage of GDP. Simpson-Bowles assumed in their baseline the amount of revenue you would generate if the top rate went to the Clinton levels.Their deficit reduction numbers include what now amounts to a trillion dollars over the next 10 years. All their deficit reduction numbers assume that revenue as a starting point. They then get a trillion dollars of additional revenue through tax reform by eliminating loopholes. Their deficit reduction numbers assume a total of 2 trillion dollars. It’s just that their baseline has the first trillion dollars embedded in it. If you want to achieve the kind of deficit reduction they did, you need the overall amount of revenue that they had.

The Politic: What deductions do you think should be on the table? Specifically, the mortgage back deduction, the charitable giving deduction, and the employer health care deduction. Would you be willing to eliminate or cap those deductions? 

I am not in favor of eliminating those deductions. I am willing to look at the proposal the president has put on the table, which would reduce the value of those deductions for high-income earners. The president has a proposal that will limit the value of deductions to 28 percent, even if you are a taxpayer in the 35 or 39 percent tax rate. I’m willing to look at reducing the value of certain deductions for some high-income earners.

The Politic: With the end of the election season, do you see any hope of movement toward a more productive and civil government, or is this gridlock here to stay? 

I certainly hope for more productive results. The fiscal cliff has lots of risk, but it also has a potential for a productive result. The cliff was set up as an action-forcing mechanism, in order to achieve deficit reduction. The fact that there is so much focus on this indicates that at least it has focused people’s minds that we have to work this out. I’m hopeful that we will. The major impediment has been the absolute refusal on the part of Republicans in Congress to agree to any revenue component so far. If that’s changing, then there’s hope. If it’s not, then obviously the revenue will come at the end of the year. At the end of the year, if all the tax rates reset, you’re talking about 10 trillion dollars of revenue over the next 10 years, including 500 billion dollars of revenue in the coming year.

The Politic: Would you rather vote to allow all the tax rates to expire if the Republicans refuse to agree to marginal rate increases on the upper quintile?

I want to avoid the fiscal cliff, but in my view, the keys to the car are in Republican hands. This was not a hidden issue in the presidential campaign, this was a central issue. Every exit poll demonstrated that the American people want to take a balanced approach to deficit reduction. We know what a bipartisan approach looks like. It’s the kind of framework you get from Simpson-Bowles. That’s where the country is; they want a balanced approach. The question is, will congressional Republicans adopt the same bipartisan framework that’s been recommended by every bipartisan group that has looked at this? I’m personally willing to adopt that framework.

Dmitri Halikias is a freshman in Ezra Stiles College

 

 

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