CQ TODAY ONLINE NEWS
Nov. 9, 2011 – 10:35 p.m.
Deficit Panel Steps Back After Offers
By Joseph J. Schatz, Paul M. Krawzak and Sam Goldfarb, CQ Staff
The joint deficit reduction committee shifted back into neutral on Wednesday despite hints of motion earlier this week toward an agreement to overhaul the tax code and pare more than $1 trillion from the federal budget.
After spending weeks on the defensive over their unwillingness to entertain tax increases, Republicans sought to place the onus on committee Democrats to make the next move, accusing them of walking away from the latest GOP offer, which would have put more than $300 billion in tax revenue on the table. The GOP proposal would cut spending by $750 billion, generate $500 billion in revenue and achieve about $200 billion in interest savings, according to Republican aides.
Talks among members of the Joint Select Committee on Deficit Reduction have run aground before. Panel members spent much of the past month at loggerheads over taxes, an issue that has stymied bipartisan budget negotiators all year.
Still, the panel is working against the clock, struggling to meet a Nov. 23 deadline to produce legislation that would pare future deficits by at least $1.2 trillion.
Many lawmakers outside the committee seem to be holding their fire as the panel deliberates — closed-door discussions of tax increases have not sparked outrage from anti-tax advocates, and proposals to cut entitlement spending have not prompted yells from liberals.
While panel Democrats called the latest GOP plan insufficient, the Senate’s second-ranking Democrat called the offer “a breakthrough” that opens the door to higher tax revenue and a possible agreement.
“The fact that some Republicans have stepped forward to talk about revenue, I think is an invitation for Democrats to step forward to talk about entitlement reform as well as spending cuts — therein lies the core of an agreement,” said Senate Democratic Whip
Panel members from each party continued to meet among themselves Wednesday, and while Republicans said Democrats had called for a “time out,” Democratic aides said conversations were continuing between Republicans and Democrats on the committee, although not in person.
Comparing Partisan Proposals
The two sides have moved closer together than they were at the start of the process, as illustrated in the plans each put forward on Nov. 7. Both of those proposals appeared to breach long-held partisan redoubts.
For instance, the $2.3 trillion deficit reduction plan that Democrats offered proposed $350 billion in curbs on Medicare spending, including $250 billion from payments to providers, and $100 billion from money for beneficiaries. The Democrats also proposed $50 billion in Medicaid cuts.
The tax plan at the heart of the latest GOP proposal, on the other hand, would overhaul the tax code and raise $250 billion in individual taxes, $50 billion in corporate taxes and an additional $40 billion in tax revenue from changes to the consumer price index used to calculate federal benefits and income tax brackets.
A GOP aide said the plan, which was presented by Sen.
Deficit Panel Steps Back After Offers
Aides to Democratic members of the joint panel have strongly criticized Toomey’s proposal, arguing that it would cut taxes for the wealthiest Americans while raising taxes on low- and middle-income earners.
Toomey’s plan would reduce all income tax rates by about 20 percent. If applied this year, for example, household income above $379,150 would be taxed at 28 percent rather than 35 percent. And married couples who earn a total of $100,000 would pay a top rate of 20 percent rather than 25 percent.
To pay for lower rates and raise the additional $250 billion, Toomey proposes to broaden the tax base by scaling back or eliminating tax breaks. But he has made it clear that he does not support raising taxes on capital gains or dividends, which currently are taxed at 15 percent.
Citing previous research by the JCT, Democrats say that it would be impossible to maintain the current progressivity of the tax code without raising taxes on capital income.
JCT has examined what Democrats contend is a similar plan to Toomey’s that would scale back tax breaks, lower tax rates by 15 percent, and raise $600 billion more than an extension of current tax policy. Under that plan, the average taxpayer with earnings above $1 million would see a tax cut of $31,764, while taxpayers with income between $75,000 and $100,000 would have to pay $987 more to the IRS than they do now.
In broad terms, Toomey’s plan follows a familiar template. Almost every attempt in recent years to write a bipartisan deficit-reduction package has included a call to raise revenue by restructuring tax breaks while also reducing rates.
The Way Forward
Though Toomey’s specific plan is clearly unacceptable to Democrats, the joint committee might embrace some of its ideas by establishing parameters for a future overhaul of the tax system and letting the House and Senate tax-writing committees work out the details by a deadline next year.
In their offer earlier this week to Republicans, Democrats proposed raising $650 billion this way, in addition to a $350 billion “down payment” of new revenue. Democrats have said that a new tax system should be at least as progressive as the current one.
No matter how his plan is scored, Toomey has been open to raising taxes on high-income earners to preserve the tax code’s progressive character. A GOP aide said the plan would generate its additional $250 billion in tax revenue from the upper two brackets. At the same time, Republicans said $250 billion is the most they are willing to get out of the individual tax system, leaving the two sides still far apart, despite moving slightly closer in recent days.
Republicans said Democrats were, at first, receptive to the tax overhaul offered by Toomey, although Democrats made clear that they viewed the $250 billion in new tax revenue as insufficient.
As talks continued late into the night of Nov. 7, Republicans added savings through the means-testing of Medicare benefits and raising Medicare premiums, raising their calculation of revenue toward $800 billion, a Republican aide said. Democrats then put an increase in the Medicare eligibility age and a new way of calculating inflation on the table, the aide said.
“We were in a really good place Monday night,” the aide said. But he added that when the two sides met again the next day, “the attitude had completely shifted,” with Democrats saying they were still far apart.
Deficit Panel Steps Back After Offers
Democrats challenged that Republican characterization of the Nov. 7 meeting.
Democrats “were never anywhere close to accepting anything — anywhere, even one iota close,” a Democratic aide close to the committee said. Echoing a common refrain from the past several months, the aide added that “Republicans have not been flexible at all.” The Democratic aide also strongly denied that Democrats put the Medicare age change, or the consumer price index change, on the table.