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As the GOP grapples with the new post-election reality of budget negotiations, Republicans have started to distance themselves from Americans For Tax Reform founder Grover Norquist, the anti-tax crusader behind the GOP’s “No New Taxes” pledge. Several top Republicans abruptly abandoned Norquist this week, declaring themselves unbeholden to his pledge, which forbids signers from raising any type of revenue.
But privately, several Republican activists told Business Insider that they are neither surprised nor upset by Norquist’s fall from grace, underscoring a growing schism between the ATR chief and his fellow conservatives.
“For those of us in the trenches, this is old news,” a top Republican Senate aide told Business Insider. “I think his power has been vastly overstated.”
To understand the disagreement between Norquist and his fellow Republicans, it’s important to understand what is in his infamous anti-tax pledge, known in Republican circles as simply “The Pledge.”
I, ______, pledge to the taxpayers of the state of ________, and to the American people that I will:
ONE, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and
TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.
The basic premise is one that the majority of conservatives agree with: That Republicans should never agree to new tax revenues because Democrats will find a way to use those revenues to increase spending.
The schism stems from the second clause, which defines tax credits and deductions as revenue, rather than as spending. What that means is that, according to the pledge, the elimination of any tax credit or deduction — including industry subsidies and tax loopholes — qualifies as an increase in taxes.
“Spending is money going out of the Treasury, taxes are money going into the Treasury,” ATR communications director John Kartch explained in an email to Business Insider. “To collect less in taxes is to bring less money into the Treasury. It has nothing whatsoever to do with spending, which is to send money out of the Treasury.”
The problem is that almost everyone else besides Norquist — including Republicans, Democrats, and economists — agrees that tax credits and deductions are actually “tax expenditures,” or spending through the tax code.
“Republicans and Democrats argue from opposite sides of the balance sheet — whether we should increase revenues or cut spending,” explained the Senate aide, who asked not to be named in order to speak candidly. “But Grover is totally isolated in considering the elimination of tax credits to be a tax increase.”
A really simple example is the $78 million tax break for NASCAR racetrack owners, one of myriad special interest loopholes and exceptions that riddle the tax code. Cutting this loophole would be tantamount to the government spending $78 million less to this industry.
Some conservatives argue that by protecting deductions, the pledge actually safeguards inefficiencies in the tax code and distorts markets by allowing the government to pick winners and losers. So while the pledge prevents lawmakers from shifting the cost of deductions on to taxpayers, it also severely hamstrings Republican efforts to simplify the tax code, making it relatively easy for lobbyists to push through special interest loopholes and nearly impossible for lawmakers to take those loopholes out.
“The pledge just doesn’t reflect the reality of how tax policy works,” the aide added. “Grover is like the L. Ron Hubbard of tax reform.”
Despite these budgetary absurdities, Norquist and his pledge have been at the nucleus of Republican power for more than two decades. But as the party’s ideological concerns have shifted to deficit reduction, some conservatives, including prominent groups like Freedomworks and the Club For Growth, have begun to buck Norquist on the issue of eliminating tax deductions.
The first signs of Norquist’s waning influence began in the spring of 2011, when Sen. Tom Coburn (R-OK), an early Norquist critic, forced a Senate vote on the elimination of federal tax credits for ethanol.
Although Norquist theoretically supported cutting the ethanol tax credit, he demanded that Senate Republicans tie the provision to an amendment that would eliminate estate taxes in order to comply with the pledge. When the estate tax amendment was unable to get to a vote, Norquist was forced to oppose the elimination of the ethanol subsidies.
His position exposed the underlying flaw in the ATR pledge: Clearly, the idea that ending a $6 billion tax credit to Iowa’s corn industry amounts to a tax increase on Americans is ridiculous. Leading conservatives — including the Wall Street Journal, National Review Online’s Jonah Goldberg, and the Club For Growth — quickly sided with Coburn, and mocked Norquist for his folly. In the end, 33 Senate Republicans voted to eliminate the ethanol subsidy, in what amounted to one of the biggest mass defections from Norquist’s pledge.
Some conservatives believe and allege that the protection of special interest tax credits is not simply an unintended consequence of Norquist’s orthodoxy, but actually an integral part of ATR’s modus operandi.
Although most Republicans that Business Insider spoke to were unwilling to be named while criticising ATR, several current and former Hill staffers who regularly attend Norquist’s weekly meetings told Business Insider that Norquist is widely regarded among conservatives as a “straw man,” whose primary objective is to protect ATR donors.
“Grover Norquist is what we like to call a jukebox,” said one former GOP Senate staffer who regularly attended Norquist’s weekly meetings. “You put money in him and he sings whatever tune you want.”
The structure of Norquist’s organisation makes these claims virtually impossible to prove. Americans For Tax Reform is set up as a 501(c)(4) nonprofit, which means that it is classified by the IRS as a “social welfare organisation.”
Critically, these groups are not required to disclose their donors, and have no limitations on lobbying. According to federal lobbying disclosure forms, ATR spent $1.16 million last quarter lobbying on about 45 individual bills, only 11 of which were directly related to taxation.
“The challenging thing about Grover is that there is absolutely no transparency — we don’t know what interests he represents, or whether there are any conflicts of interest,” another Republican Senate aide told Business Insider.
“People think that he has this ability to keep Republicans from raising taxes, but the pledge isn’t really about keeping taxes low,” he added. “It’s about keeping the cash flow — it’s a way for Grover to shake down conservatives.”
Still, there remain serious political risks to abandoning Norquist and his tax pledge, both for individual Republicans and for the GOP at large.
“The pledge has done a very good job of holding Republicans’ feet to the fire,” explained Erick Erickson, editor of the influential conservative blog RedState. “It’s created a litmus test for conservatives.”
While conceding that there are “downsides” to the pledge, Erickson cautioned Republicans that now is not the moment to break ranks on tax policies, regardless of how tempting it may be to dump Norquist.
“The pledge has been very useful for the Republican Party,” he said. “The question is, is it the pledge that’s been useful or is it Grover Norquist?”
“Now we’re starting to see conservatives who think it’s all about Grover Norquist, privately cheering on his demise at a very inopportune time,” Erickson added. “They’re rejecting his tax pledge when it is about the only thing that is holding us together.”