CQ TODAY ONLINE NEWS – TAXES
Nov. 7, 2012 – 6:56 p.m.
Congressional Leaders Signal Opening Bids in High-Stakes Fiscal Talks
By Sam Goldfarb, CQ Staff
Following an election that provided President Obama with a second term and maintained the current balance of power in Congress, leaders from both parties are speaking in sober tones about the need to reach a compromise deficit reduction agreement, expressing clear differences yet sending signals that their partisan divisions might not be unbridgeable.
In the space of a few hours Wednesday, Senate Majority Leader
“The election’s over and we have enormous challenges ahead of us right here, and we have to sit down and go to work on it now, not wait,” Reid said.
Boehner’s message was largely the same, albeit one tempered by the prospects of seeking an accord that can win support from a GOP caucus that has been adamant in opposition to Obama. “If there is a mandate in yesterday’s results, it is a mandate for us to find a way to work together on solutions to the challenges we face together as a nation,” he said.
Tax Rate Debate
The two men remained separated by the issue of taxes, with Reid claiming a mandate to let tax rates increase on upper-income earners and Boehner insisting any new tax revenue would need to come from a broad tax overhaul that would involve closing tax breaks and lowering, rather than raising rates.
Boehner effectively offered to return to the deal that he had nearly reached with Obama during the debt limit negotiations of 2011. That near-pact included a promise to raise $800 billion over 10 years while preserving or increasing the current progressivity of the tax code and setting the top individual income tax rate somewhere below its current level of 35 percent.
Any effort to fundamentally restructure the tax system would take months to work out, Boehner said, forcing lawmakers to agree on a framework agreement in the lame duck before trying to meet the established targets in 2013.
Supporting an idea put forward by several centrist lawmakers, Boehner suggested lawmakers could also agree to a “down payment” in the lame duck that could serve as “a catalyst for major solutions” achieved next year.
Reid, offering a simpler way to raise taxes, argues for arriving at a full deficit reduction agreement by Jan. 1. “I’m not for kicking the can down the road,” he said. “I think we’ve done that far too much. I think we know what the issue is. We need to solve that issue.”
Despite the staunch opposition from Republicans to raising tax rates, Reid said it should not be difficult to let the top two rates go up on schedule at the end of the year, while maintaining the current tax rates on incomes up to $200,000 for individuals and $250,000 for couples.
“There was a message sent to us by the American people based on the campaign,” he said. “That is, people making all this money have to contribute a little bit more. And all the exit polling, all the polling we’ve done, the vast majority of the American people support that, including rich people.”
In an interview later, Reid said he was skeptical about the idea of a small deficit reduction agreement in the lame-duck session, but did not entirely rule out the type of two-step process that Boehner suggested.
Congressional Leaders Signal Opening Bids in High-Stakes Fiscal Talks
“Down payment, what does he mean? I don’t know what he’s talking about,” Reid said. “I’ll be happy to take a look at it.”
Reid said he had not watched Boehner’s public statement, and had not discussed specific fiscal proposals in a private conversation with the speaker about the election earlier in the day.
Reid’s top lieutenant,
In the coming days, Democrats and Republicans alike will try to get a clearer sense for how Obama would prefer to avoid the automatic budget cuts and reduce the deficit.
Over the past 18 months, administration officials have vacillated between an interest in the kind of tax overhaul favored by centrist lawmakers and a desire to raise tax rates in the manner favored by most liberals and many independent voters.
Both approaches carry political and economic risks. If Obama insists on letting the top two tax rates jump from 33 percent and 35 percent to 36 percent and 39.6 percent, Republicans might also stand firm, causing all tax rates to go up and risking another recession by depressing consumer demand.
At the same time, actually accomplishing a tax overhaul would be far more difficult than merely committing to one. Raising revenue while lowering tax rates and maintaining the current distribution of the tax burden would be hard to accomplish without increasing taxes on households earning less than $250,000. It would also probably involve curtailing popular tax breaks such as the deduction for home mortgage interest payments and force Republicans to accept higher tax rates on investment income.
Alan K. Ota contributed to this story.