Supercommittee Dems demand that GOP give up lowering tax rates

Supercommittee Democrats say they are willing to accept the latest deficit-reduction offer from Republicans, but only if the GOP drops its demand to lower and extend the Bush tax rates.

The demand that tax rates stay at their current levels is one of four major Democratic demands that will be tough for Republicans to accept.

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The Democatic proposal, which Democratic sources said was made to supercommittee Republicans on Friday, to a degree illustrates the wide gaps the remain between the two sides less than a week before the panel’s Nov. 23 deadline to reach a deal on at least $1.2 trillion in cuts.

Democrats also say Republicans must drop their demand to raise the Medicare retirement age and forego their proposal to use chain CPI to calculate entitlement benefits and tax brackets. Liberal experts calculate that using chain CPI could reduce Social Security cost-of-living adjustments by up to a third of a percentage point.

The fourth demand from Democrats is that the GOP deficit-reduction plan include stimulus spending to make “a real investment in jobs.”

If the GOP agrees to those four conditions, Democrats on the supercommittee have informed their Republican counterparts that they would be willing to accept $876 billion in spending cuts, including $275 billion in cuts to healthcare entitlement programs, according to Democratic sources familiar with the offer.

Democrats say they will also accept Sen. Pat Toomey’s (R-Pa.) proposal to raise $250 billion in new net tax revenues as well as additional measures to raise a total $401 billion in new revenues. They will not, however, accept revenues from opening the Arctic National Wildlife Refuge to oil drilling.

Rep. Jeb Hensarling (R-Texas) on Wednesday said he Democrats needed to move further on entitlements for the GOP to agree to offer more on revenues.

“I’m still waiting for a new offer to be put on the table,” Hensarling told reporters. “Should that offer come, I am more than happy to negotiate around that offer.”

Democrats offered their changes to the latest GOP deficit-reduction plan on Friday, according to Democratic sources. Republicans have not responded to this counter offer, say sources.

The Republican offer leaked last week would raise $250 billion in net new tax revenue by limiting tax deductions and another $50 billion in new revenue by re-calculating tax brackets using chain CPI, according to a GOP source.

A GOP aide familiar with the talks declined to respond to the changes Democrats have proposed for the GOP offer.

The aide noted that supercommittee Republicans offered to accept a net increase in tax revenues within the broader context of tax reform.

Republicans say lowering the top tax bracket from 35 percent to 28 percent — and the lower brackets proportionately — would spur economic growth and flood government coffers with more revenue without raising tax burdens.

Democrats, however, do not want to lock in lower tax rates 13 months before the extended Bush tax rates are set to expire. They believe they will have more leverage to negotiate taxes after the election.

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Democrats believe their counteroffer is serious because it would it would cut more than two dollars in spending for every dollar it raises by eliminating tax deductions.

Supercommittee Democrats have twice offered significant concessions on healthcare entitlement cuts. In late October they floated a plan to reduce the deficit by $3 trillion, including a $1.3 trillion in tax increase.

Their biggest concession was an offer to trim Medicare by $400 billion and Medicaid by $75 billion, according to a source familiar with the details. They also proposed using chain CPI to calculate Social Security cost-of-living adjustments, trimming the rate of growth.

Last week, Democrats made a second offer to lower the deficit by $2.3 trillion. That plan included $1 trillion in tax increases and significant changes to Medicare and Medicaid. It would have reduced Medicare spending by $350 billion and Medicaid by $50 billion, according to a familiar source. The $2.3 trillion plan dropped the proposed switch to chain CPI.