By Alexander Bolton - 07/08/11 09:22 PM EDT
Senate Democrats have officially abandoned President Obama’s campaign promise to end the Bush era tax rates for individuals making more than $200,000 and families earning over $250,000.
A long-awaited budget plan assembled by Senate Budget Committee Chairman Kent Conrad (D-N.D.) more than doubles the threshold for extending the Bush tax rates.
Obama promised during his 2008 campaign to end tax cuts for families making above $250,000, a goal that Senate Democrats shared until late last year.
Senate Democratic Policy Committee Chairman Chuck Schumer (D-N.Y.) has pushed his colleagues to raise the cut-off to $1 million because it’s easier to use as a message against Republicans.
Senate Majority Leader Harry Reid (D-Nev.) introduced a resolution this week that would declare it is the sense of the Senate that “those earning $1 million or more per year make a more meaningful contribution to the deficit reduction effort.”
Democratic leaders are rallying around the $1 million cut-off even though many senators would prefer keeping it at $250,000.
“I’d rather have it at $250,000, I’m not shy about it,” said Sen. Carl Levin (D-Mich.). “I prefer it at $250,000.”
Levin declined to confirm the details of Conrad’s budget because he has been asked to keep them secret, but he commented generally on raising the threshold.
Levin conceded that extending the Bush tax rates for all families making up to $1 million would cost a lot of revenue but said the higher cut-off is “better than where we are.”
Conrad is expected to leak his budget this weekend. Conrad’s spokesman, however, declined to discuss any details on Friday afternoon.
The ambitious plan would cut the federal deficit dramatically.
It would provide $4 trillion in deficit reduction over 10 years. (Using the baseline assumptions of Obama’s fiscal commission, it would reduce the deficit by nearly $5 trillion over the next decade.)
Conrad would reduce the deficit with an even mix, 50-50, of spending cuts and increases in tax revenue. He argues that the plan would call for a net tax cut because it would recommend extending tax cuts for middle-income earners and fixing the Alternative Minimum Tax to save middle-class families from having to pay it.
Republicans disagree with this logic. They argue the Bush tax rates and the AMT patch are status-quo tax policy, even though they’re due to expire.
Conrad’s blueprint would stabilize the debt by 2014 and cut the deficit to 2.5 percent of gross domestic product (GDP) by 2015, according to a Democratic source familiar with the framework. The plan would reduce the deficit to 1.3 percent of GDP by 2021, according to the source.
Conrad has offered his colleagues a menu of choices for raising tax revenue by ending special tax breaks.
One menu option he has suggested is ending the mortgage interest tax deduction for second homes, according to two Senate Democrats familiar with his plan. This sparked some controversy at a Senate Democratic caucus meeting Wednesday.
One lawmaker who attended the meeting said some lawmakers showed their concern by pressing Conrad for more of an explanation about capping the mortgage interest deduction.
A spokesman for the Senate Budget Committee said Conrad’s budget does not assume the mortgage interest deduction would end for second homes.
“There is simply no such assumption,” said the aide.
The budget committee aide said the panel does not have jurisdiction to set tax policy, the aide noted.
“The Budget Committee has no authority to make that decision – on its face that can’t be right. We don’t have the authority to make that determination,” the aide said.