Dems Offer $2.3T Plan Amid Tax Rancor

By Heidi Przybyla and James Rowley - Nov 11, 2011 6:42 AM GMT+0700

Members of Congress from both parties are open to revisions in a Republican plan to raise $300 billion by overhauling the tax code, Democratic and Republican congressional aides said, even as lawmakers publicly rejected competing debt-cutting proposals.

Members of the supercommittee have talked about a higher top marginal income tax rate than the 28 percent proposed this week by Republican Senator Pat Toomey of Pennsylvania, a Republican congressional aide and a Senate Democratic leadership aide said in separate interviews. Democrats also want additional sources of new revenue such as ending certain corporate tax expenditures, the Democratic staff member said.

Each side is waiting for the other to make the next move, the Democratic aide said. The Republican staff member said Toomey’s plan was intended as a framework and not a final offer. Neither aide was authorized to speak publicly.

“Not much has happened” since the two sides “reached an impasse” two nights ago, Senator Jon Kyl, an Arizona Republican on the supercommittee, said today.

Publicly, members of the 12-member, bipartisan supercommittee were downbeat about prospects for a deal to cut $1.5 trillion over 10 years. Congress set a Nov. 23 deadline for the panel to reach agreement. Failure to enact a plan by the end of the year would trigger $1.2 trillion in automatic spending cuts in 2013.

“What we still haven’t seen from the Democrats is a plan that deals with our structural debt crisis, that actually solves the problem,” said Texas Representative Jeb Hensarling, the Republican co-chairman of the panel. Still, he said, discussions are continuing and “I haven’t given up hope.”

One on One

Republican and Democratic members on the supercommittee have met one-on-one over the past couple of days in an attempt to find common ground.

“We are in a good frame of mind; people are in serious discussions,” said Massachusetts Senator John Kerry, a Democrat on the panel. Another Democratic member, Max Baucus of Montana, said, “Things are moving well. There are ongoing talks.”

Some Democrats on the committee are proposing a $2.3 trillion deficit-reduction plan with equal amounts of spending cuts and tax increases, which Republicans publicly rejected.

The Democratic proposal includes a so-called trigger that would raise $650 billion if the U.S. tax code isn’t revamped by Jan. 1, 2013, according to a document offered to supercommittee members. Tax writers would receive instructions to cap individual tax rates at 35 percent, overhaul corporate taxation and maintain the code’s current progressivity.

Tax Deductions

Democrats presented the offer to Republicans on Nov. 7. During the same meeting, Toomey outlined his proposal that included some net tax increases by reducing individual deductions and exclusions, which primarily benefit the wealthy, in exchange for lower rates, according to a Republican aide and a Democratic aide familiar with the plans.

Toomey’s proposal would reduce the top individual tax rate from 35 percent under current law to 28 percent.

The six Democrats and six Republicans on the panel remain hundreds of billions of dollars apart on tax revenue.

Dick Durbin of Illinois, the second-ranking Senate Democrat, said today his party may ultimately have to accept a deal with less revenue than spending cuts. “We’re likely to have something different” than what his party has been seeking, he said, calling the Republican plan “some progress.”

“We have a big gap with respect to where we are on revenues,” Kerry said yesterday.

Significant Step

At the same time, Republicans and some Democrats described the Toomey proposal as a significant step toward breaking Republicans’ no-tax-increase stance.

“Republicans have put revenues on the table,” said Senator Lamar Alexander of Tennessee, the No. 3 Republican in the chamber. “Democrats have put entitlements on the table. We need to put more of each on the table and get a result.”

Under the Democratic outline, the supercommittee would cut the federal budget deficit by $2.3 trillion over the next decade, with $1 trillion each coming from spending cuts and revenue and $300 billion from interest savings. Democrats’ proposal last month called for $1.3 trillion in additional tax revenue.

The revenue increases would start with what the document described as a $350 billion “down payment” of “miscellaneous revenue provisions.”

The Democratic plan also would include $350 billion in cuts to Medicare, with $250 billion from providers and $100 billion from beneficiaries. An additional $200 billion in cuts would come from other mandatory programs. The plan would include $400 billion in cuts to discretionary programs, with $200 billion from defense and $200 billion from non-defense programs.

Entitlement Cuts

The cuts in entitlement programs would take effect only upon enactment of a tax-code overhaul or implementation of the trigger under the Democratic plan.

Toomey’s proposal would generate about $300 billion in additional tax revenue when compared with the revenue that would be raised by extending tax cuts scheduled to expire in 2012. In addition, Republicans propose generating several hundred billion dollars from non-tax-revenue sources, such as asset sales.

According to Republicans, their proposal would cut about $1.2 trillion from the budget deficit over 10 years, with about $700 billion of that amount coming from spending reductions.

To contact the reporters on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net; James Rowley in Washington at jarowley@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net