Republicans offer to limit tax deductions — for lower tax rates

Republican supercommittee negotiators are willing to limit tax deductions for upper income households in exchange for lowering tax rates, according to a GOP aide.

Republicans say some of the revenue raised from limiting itemized deductions for the wealthy could be used for deficit reduction, and are painting the move as a serious concession made to galvanize the talks two weeks before its Nov. 23 deadline to reach a deal.

Democrats, however, argue lowering tax rates would cost the government more revenue than it would raise from changing deductions. They say the GOP offer, as a result, is more of an effort to avoid blame than reach a deal.

Republicans say their offer is a shift, since GOP members previously have said any tax increases generated by eliminating tax deductions must be balanced out entirely by lowered rates.

The GOP aide cast the idea as a response to a Democratic proposal to limit itemized deductions for the wealthy on mortgages and other tax breaks. The aide said it was not a formal proposal.

“This is not a Republican proposal,” the GOP aide said. “Why would Republicans propose increasing taxes? This is Republicans giving something in return for lowered tax rates.”

The exact amount of revenue to be used is shifting on an hourly basis as a result of the fast-moving negotiations, but could be characterized as hundreds of billions of dollars, the aide said.

The aide also said the hundreds of billions of dollars would be in the context of a $1.2 trillion package, the smallest possible to avoid across-the-board cuts, and would not include any revenues from economic growth.

Anti-tax advocate Grover Norquist was immediately disapproving of the idea. "Supercommittee idiot idea: raise revenue by capping tax exemptions. That was called the Alternative Minimum Tax/AMT..AMT two, anyone?" he tweeted.

Democratic aides scoffed at the offer and characterized it as a massive tax cut for the rich. So far supercommittee Democrats have been pushing for an end to the Bush-era tax rates for the wealthiest earners.

One Democratic aide said that the GOP has been scrambling to come up with an offer that looks like a concession while at the same time pleasing the Tea Party and Norquist.

"This plan would provide the very wealthiest Americans with one of the largest tax rate cuts ever. It's a shell game. A thinly veiled attempt to appear to put revenue on the table while simultaneously removing far more with massive tax cuts for wealthy Americans. This plan is not a solution Democrats or middle-class Americans would ever be willing to accept," a Democratic aide familiar with the talks said of the GOP move.

Aides said that the proposal "locks in" the Bush-era tax rates, set to expire at the end of 2012, in exchange for an outline of further tax reform down the road.

One Democratic aide said that the GOP proposed lowering the current top tax rate of 35 percent to 28 percent. If the Bush-era tax rates expire, the top rate goes to 39.5 percent.

Another aide said that GOP members have proposed new revenue from leases for opening up the Arctic National Wildlife Refuge, a non-starter for Democrats.

—This story was updated at 4:10 p.m., and at 4:51 p.m.