In order to strike a deal, the GOP may have to go even further on taxes. GOP risks rift with right on taxes

Republicans are risking a rebellion with conservatives over taxes if party leaders compromise any more in the fiscal cliff talks, especially if they raise tax rates.

Speaker John Boehner’s pitch of $800 billion in new tax revenues already has tea party-backed conservatives accusing GOP leaders of peddling a plan that would destroy job growth. Conservative outside groups are urging their party’s rank and file to rebel and reject any new taxes. Senate Minority Leader Mitch McConnell and his leadership team pointedly declined to endorse the proposal.


All told, it points to a party still struggling to find a way out that doesn’t destroy its reputation with the activist base or take the nation over the fiscal cliff. The question remains: Does it hold firm by its party’s small government principles and reject any new taxes — no matter the cost? Or does it try to stake a middle ground and cut a bipartisan deal to end the partisan gridlock, even if it means latching on to a deal that would force the conservative base to recoil?

( Also on POLITICO: Obama rejects GOP offer on fiscal cliff)

In order to get one with President Barack Obama — who has refused to cut a deal until Republicans agree to increase tax rates on the wealthy — the GOP may have to go even further on taxes, a prospect that could prompt a full-scale party rebellion.

“That’s a big gulp,” Senate Minority Whip Jon Kyl (R-Ariz.) said of the $800 billion in new taxes, which did not include a tax rate increase. “As long as we’re not talking about rates, there may be a way to accomplish it.”

Asked about the concerns from conservatives, Kyl said: “They are right it would hurt job creation. Absolutely right. Well, that’s the question — what is the least, worst alternative? And I don’t know what the answer to that question is at this point.”

( Also on POLITICO: Governors warn of fiscal cliff 'havoc')

In a counteroffer to the White House on Monday, Boehner and his leadership team proposed $800 billion in new taxes over the next decade, saying the new revenue would come from higher tax receipts, rather than through economic growth, as many conservatives demand. In the plan — which was endorsed by Majority Leader Eric Cantor (R-Va.), the rest of the leadership team and Rep. Paul Ryan (R-Wis.) — the Republicans said they would not raise marginal tax rates, including on the top 2 percent of wage earners.

Instead, they said, the money would be raised through closing a bevy of unspecified tax loopholes and deductions, while attempting to lower marginal rates. In exchange, they called for a range of spending cuts, including $600 billion from health care savings, partly by increasing by two years the Medicare eligibility age to 67, and by cutting $200 billion by overhauling how inflation is calculated, a proposal that would affect Social Security benefits.

A number of influential Republican lawmakers — such as Sens. Kelly Ayotte of New Hampshire, Lamar Alexander of Tennessee, Lindsey Graham of South Carolina and Rep. James Lankford of Oklahoma — called it a serious attempt to resolve a difficult policy stalemate, with taxes poised to increase on every American and deep spending cuts about to take effect in the new year if Washington doesn’t act.

But even with the entitlements cuts in the $2.2 trillion GOP offer, many conservatives on Capitol Hill scoffed at the proposal.

“Higher taxes is exactly the wrong thing to do,” Kentucky Sen. Rand Paul, the tea party leader, said after leaving a party lunch. “It’s not what we stand for as Republicans.”

“If you take $800 billion out of the productive sector of our economy, you’re going to harm economic growth,” said Sen. Ron Johnson (R-Wis.). “I got real concerns with that.”

Rep. Jim Jordan of Ohio, outgoing head of the conservative Republican Study Committee, said the Boehner proposal is better than the White House plan, but said his leadership’s plan is “not conducive to economic growth, and I’m not for it,” a concern he said “lots of members” are echoing.

“I think there’s going [to be] a lot of concern about supporting any [proposal] that raises taxes,” Jordan said.

South Carolina Sen. Jim DeMint’s Senate Conservatives Fund began an online drive urging its supporters to call Senate Republicans and persuade them to oppose “the Boehner tax hike.”

The tea party leader said it would “destroy American jobs and allow politicians in Washington to spend even more, while not reducing our $16 trillion debt by a single penny.”

“This conservative would be opposed to it,” Oklahoma Sen. Jim Inhofe said of new taxes in a debt deal.

Republican leaders say the reaction from the right shows that the GOP is making serious compromises — while Democrats are simply digging into their partisan positions.

Still, House Majority Whip Kevin McCarthy (R-Calif.), who signed on to the Boehner plan, said he felt “good” that the conference was largely “behind” Boehner, though he acknowledged “everyone has a different tactic how to go about it.”

The internal party divisions are apparent on other issues as well. On the floor of the Senate, conservatives sunk a United Nations disabilities treaty that had bipartisan support. And tensions boiled over behind closed doors, where Sens. John McCain (R-Ariz.) and Paul engaged in a fierce back and forth on a procedural dispute over a defense bill, sources familiar with the heated exchange told POLITICO.

But even as Boehner was seeing a rebellion on the right, Democrats scoffed at the Republican leadership offer because it failed to raise tax rates on families who earn more than $250,000 annually. By instead focusing on closing loopholes, they said it would actually raise taxes on the middle class and keep taxes low for the wealthy — all the while slashing Medicare and Social Security benefits the party has vowed to protect. Instead, the White House has put forward a plan aimed at raising taxes by $1.6 trillion, namely through raising the top tax rate from 35 percent to 39.6 percent.

Asked when the Democrats would compromise, New York Sen. Chuck Schumer said it is first up to the Republicans to agree to higher tax rates on the top 2 percent.

“That’s the first step,” Schumer, the No. 3 Senate Democrat, told reporters. “I’m not going to get to anything until they talk about the top rate at 39.6 [percent].”

But given the reaction to the Boehner proposal, Republican leaders in the Senate said it’s impossible for their party to get behind a plan to raise taxes on the top 2 percent, which they say would be disastrous for the economy.

South Dakota’s John Thune, No. 3 in Senate GOP leadership, said he’s “not willing to say that I would support” Boehner’s proposal, though he called it a “good-faith” effort.

“It’s not something that I think anybody is willing to embrace totally yet but it puts it on the table,” Thune said Tuesday.

Texas’s John Cornyn, the incoming Senate GOP whip, praised Boehner for trying to cut a deal, but wouldn’t say if he’d back it.

“It’s really premature — I think we ought to see — it’s already been rejected by the White House, so it doesn’t look like it’s going anywhere in the current form,” Cornyn told POLITICO.

And Senate Minority Leader Mitch McConnell, who is up for reelection in 2014, declined to say in a brief hallway interview if he backed the call for $800 billion in new revenues. He later told reporters he had “no particular observation other than I commend Republican leadership for trying to move the process forward.”

The internal party tensions were apparent behind closed doors, as well. At a party lunch, McCain scolded Paul for a dispute involving amendments to a defense bill, accusing the GOP freshman for giving credence to Democratic filibuster reform efforts. Paul fired back passionately, sources say.

Unlike Paul, who lashed out at Boehner’s tax plan, McCain is reserving judgment.

“For me to now second guess their proposals is not appropriate,” McCain told reporters.

John Bresnahan, Steven Sloan and Scott Wong contributed to this report.