The Hidden Message Behind Boehner’s Combative Front

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Nov. 9 (Bloomberg) -- The insta-analysis from House Speaker John Boehner’s news conference this morning is that he is going to be as unyielding as ever about not raising taxes on wealthier Americans, setting the stage for another battle royale over the soon-to-expire Bush tax cuts.

Boehner certainly came out swinging, using the old chestnut that raising rates would stifle economic growth by requiring small-business owners who report profits through individual income-tax returns to pay higher rates.

What everyone is missing, and what congressional reporters failed to ask the speaker, is whether Republicans would be willing to raise more tax revenue from upper-income Americans by limiting their deductions while maintaining or even lowering tax rates.

Such an outcome would be possible through broad-based tax reform, which explains why Boehner is practically begging President Barack Obama to work with House Republicans on an overhaul of the tax code. By closing loopholes and cutting the myriad tax breaks, deductions and exclusions that benefit high earners the most, the U.S. could raise more revenue and lower rates to boot.

To understand the coming Boehner-Obama waltz, it’s important to recognize that this is the coded message from Republicans: Let’s figure out together how to extract more tax from the well-off without raising top rates. That way, we can continue to claim we didn’t raise rates, providing the cover we need to save face and get re-elected in 2014.

The beauty of this strategy is that it also works for Obama, whose priority is making the rich pay a larger share of the tax burden. If he achieves that by cutting the value of their deductions and exclusions rather than by raising marginal rates, so be it. Obama is agnostic how it’s done, as long as he gets more revenue from it. That way, he can claim to have made good on his re-election promise -- requiring the wealthy to pay a larger share of the total tax burden.

The political path is already cleared, in many respects. During the campaign, Obama and Mitt Romney both endorsed capping deductions for tax expenditures -- home mortgage interest, charitable contributions, payment of state taxes, employer-paid health insurance premiums and the like -- though Romney never specified which ones he would limit.

None of this is to say there won’t be a lot of shouting when the negotiations begin. Whose tax deductions to cut, in which income brackets, at what level to set the cap, and which special interests deserve protection will need to be worked out. An even more delicate question is whether to extend all the Bush tax cuts -- including those for households making more than $250,000 -- while all that gets negotiated.

(Paula Dwyer is a member of the Bloomberg View editorial board. Follow her on Twitter.)

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