By Alexander Bolton - 11/10/11 01:20 AM EST
Republicans have charged Democrats with breaking off talks on the deficit-reduction supercommittee less than two weeks before the panel’s deadline to reach a deal.
The GOP accuses Democratic leaders of abruptly reining in their appointees after Republicans made a serious offer to reduce the deficit through tax reforms that would lower tax rates while eliminating or reducing tax deductions.
Democratic sources say they rejected the GOP offer because it would provide a tax windfall to the rich and shift more of the burden for paying the nation’s bills to the middle class. They say supercommittee members continue to talk by phone and assert Republicans are exaggerating to make Democrats appear intractable.
But the Democratic argument was hampered to a degree by comments Wednesday from Senate Democratic Whip Dick Durbin (D-Ill.), who said it was a “breakthrough” that Republicans were willing to put tax revenues on the table.
“The fact that some Republicans have stepped forward to talk about revenue, I think, is an invitation for Democrats to step forward and talk about entitlement reform as well as spending cuts. Therein lies the core of an agreement,” Durbin said.
While Durbin’s comments fell well short of an endorsement, Republicans highlighted them as evidence of the seriousness of their proposal.
Durbin later clarified his remarks.
"I believe the fact that Republicans have mentioned the word 'revenue' is a breakthrough. Now, I have not endorsed their proposal, nor do I think it’s the endgame by any means. But the fact that they have put revenues on the table is an important step forward,” he told Reuters.
Sen. Patty Murray (D-Wash.), co-chair of the supercommittee, rejected the GOP offer Tuesday.
She told reporters she has “yet to see a real, credible plan that raises revenue in a significant way to bring us to a fair, balanced proposal.”
The GOP proposal offered by Rep. Pat Toomey (R-Pa.) would raise about $300 billion in net new tax revenues to reduce the deficit, a concession that Democrats have demanded for months.
It does so by reducing marginal income tax rates for all brackets while reducing or eliminating tax deductions.
Under Toomey’s plan, the 35 percent rate would drop to 28 percent; the 33 percent rate would drop to 27 percent; the 28 percent rate would drop to 23 percent; the 25 percent rate would drop to 20 percent; the 15 percent rate would drop to 12 percent; and the 10 percent rate would drop to 8 percent.
The GOP deficit-reduction proposal does not detail what tax breaks would be eliminated, however, to generate the $300 billion in revenue.
Reducing the rates would be expensive.
A Democratic analysis of the proposal estimates the reduced rates would cost $3.2 trillion over 10 years compared to current policy.
The analysis concludes that popular middle class tax breaks, including the mortgage interest and college tuition deductions, would have to be cut back to raise the necessary revenue to have a $300 billion surplus.
Republicans familiar with the plan say the Democratic analysis is deeply flawed, and that $300 billion in revenue could be raised while focusing on the elimination of tax deductions for upper income households.
It is extremely difficult to say which side is right because the deliberations have been kept secret, and because the GOP proposal did not specify which tax deductions would be curbed to achieve a net gain in tax revenues.
A Republican aide said Democrats appeared interested when the GOP unveiled its compromise offer during a Monday evening meeting. But Democrats’ demeanor changed dramatically on Tuesday.
“Tuesday night Democrats came back to the negotiating table and were different people. They said we need a time out and we’re not going to meet,” said the GOP aide.
Democrats say this is not true.
“I know several instances of Democrats talking to Republicans. Democrats and Republicans are trading ideas all the time,” said a Democratic aide. But the supercommittee did not meet Wednesday and sources did not know of immediate plans to convene.
A major unstated reason for the Democratic opposition to the latest GOP offer on taxes is that it would lock in low rates for the nation’s wealthiest families. Democratic strategists say this would give up their biggest bargaining chip in deficit reduction negotiations: the impending expiration of the Bush-era tax cuts. Most Democrats say it’s not worth giving up this prize for a modest $300 billion in new net tax revenues.
Toomey crafted the proposal after holding meetings with Senate Finance Committee Chairman Max Baucus (D-Mont.). Both are members of the supercommittee.
Democrats say middle-income families receive more tax relief than wealthy earners and therefore the Republican tax reform plan would tilt heavily in favor of the rich.
The Democratic memo states the proposal would “significantly reduce after-tax income for all taxpayers with income less than $200,000 relative to current policy.”
“This is the largest percentage tax cut for multi-millionaires since Calvin Coolidge was in the White House and is a giveaway to Big Oil and every other industry on earth,” said a Democratic aide with knowledge of the talks.
Under the GOP plan, taxpayers earning between $200,000 and $500,000 would see their after-tax income increase by 0.9 percent and those earning between $500,000 and $1 million would see a 2.5 percent increase, according to the Democratic analysis. Taxpayers earning between $50,000 and $75,000 would suffer a 1.5 percent decrease in after-tax income.
But Democratic aides concede the analysis is a “back-of-the-envelope” projection because the Republican plan lacked key details. Democrats based their analysis on what they called “a similar proposal” that had already been scored by the Joint Committee on Taxation.
A Republican aide said the Democratic analysis is deeply flawed because it’s not based on the Toomey proposal itself.
The aide said the GOP proposal “doesn’t touch the child tax credit.”
“Those are things the Democrats throw out to make the class warfare argument,” said the aide.
Republicans say their plan could generate enough revenue to reduce marginal tax rates across the board and achieve $300 billion in tax reduction by limiting tax deductions in the top two income brackets, which include families making more than $212,000 a year.
Republicans argue the Simpson-Bowles plan reduced the top income tax rate to 23 percent and allocated more money to deficit-reduction by eliminating tax expenditures, in one of its scenarios.
A GOP aide familiar with the Republican supercommittee proposal say it would raise $40 billion by implementing chain CPI (Consumer Price Index) as the measure for calculating tax bracket adjustments and another $60 billion by eliminating corporate tax breaks, including the ethanol tax subsidy and tax breaks for corporate jets.
Democrats on Wednesday evening re-floated their latest counteroffer, a plan to reduce the deficit by $2.3 trillion. It would raise $1 trillion in revenues, cut $1 trillion in spending and achieve $300 billion in interest savings.