Senate Democrats will draft a budget blueprint for the first time in four years and use it to fast-track an overhaul of the tax code that is intended to raise significant revenue over the next decade, Senator Charles E. Schumer of New York said on Sunday.On Friday, House Republicans waved the white flag of surrender on the debt limit, saying they would raise the ceiling as long as the Senate agreed to make their salary contingent on producing a budget. Technically, that's still a ransom demand, but it's like going from demanding all the gold at Fort Knox to demanding a $5 gift certificate at Glenn Beck's favorite gold e-tailer. Budget documents aren't the same as spending bills—guidelines for spending levels intended to control the budget-making process. They can also include reconciliation instructions, and as we saw with the passage of Obamacare, reconciliation allows the Senate to move forward on legislation without the threat of filibuster.
According to Schumer, Senate Democrats will use reconciliation instructions to provide guidance on tax hikes, allowing the Senate to completely bypass the filibuster. Of course, being able to avoid the filibuster doesn't much matter if House Republicans won't go along with tax increases, but check out this nugget from The New York Times:
A senior Republican tax aide confirmed that Representative Dave Camp of Michigan, the Ways and Means chairman, planned to push forward this year with “revenue-neutral” tax reform, with the revenue target adjusted upward to the amount raised by the higher tax rates on the wealthy approved this month to resolve most of the so-called fiscal cliff.Yes, that's just an anonymous aide, so take it with the appropriate level of skepticism, but I still think it's noteworthy that an anonymous GOP aide is dropping hints at accepting new tax revenues through tax reform. In light of the comments, if I had to guess how things will play out form here it'd be this: The sequester will get replaced by a deficit reduction package that includes some new revenue through tax reform, a matching amount of cuts to Social Security and Medicare (but not Medicaid) contingent on the success of tax reform, and a different set of domestic and defense discretionary cuts to replace the ones in the sequester (which won't be contingent on anything). When that package is done, it will effectively mean the "Grand Bargain" is achieved. Republicans will grumble, but won't push forward on government shutdown. The White House, meanwhile, will turn its focus from deficit reduction to other policy areas. Of course, that's just my prediction of what will happen. As always, I reserve the right to be wrong.
The Republican aide said if the Senate can approve tax changes that raise revenues, it is possible that difficult negotiations between the two chambers could produce a final deal that would produce more tax revenue – but not as much as the Senate wants.