By Erik Wasson and Bernie Becker - 03/19/12 10:48 PM EDT
House Republicans will slash personal income taxes to a 25 percent top rate and a 10 percent lower rate as part of their fiscal 2013 budget proposal to be released Tuesday.
The election-year plan from House Budget Committee Chairman Paul Ryan (R-Wis.) would greatly simplify the tax code by collapsing the current system of six tax brackets for individuals into two marginal rates, Republican members and aides said Monday.
The proposal represents an aggressive bid by House Republicans to seize an advantage on taxes ahead of a presidential election expected to center on economic issues and the future of the Bush-era tax rates, which are set to expire at the end of the year.
While the proposal is unlikely to become law this year, it dovetails with plans from GOP presidential candidates and sets the stage for a battle with Democrats and President Obama, who wants to raise tax rates on families with annual incomes above $250,000.
In its corporate tax reform framework, the Obama administration called for lowering the top rate to 28 percent, and ensuring that U.S. manufacturers paid no more than 25 percent.
A number of details are left vague in the House GOP plan, including the income thresholds for the two proposed individual tax brackets.
But the proposal does include more tax reform specifics than last year’s House GOP budget did, and it lays out a clearer vision of how Republicans on Capitol Hill want to overhaul the tax code — an idea that has been embraced by officials and political figures on both sides of the aisle.
The Ryan budget plan would set a $1.028 trillion discretionary spending cap below the $1.047 trillion cap set by last summer’s debt-ceiling deal, and instruct committees to find ways to avoid the automatic cuts also included in that agreement, according to lawmakers briefed on the plan.
The plan also sets up a fight with Senate Democrats, who had warned Republicans against cuts deeper than those mandated by the debt-ceiling deal.
On the health side, the budget includes a plan to overhaul Medicare that Ryan hashed out an option with Sen. Ron Wyden (D-Ore.) that would require future seniors to use subsidies to buy into the current public program or a private plan.
The new proposal is a shift from a proposal in the 2012 budget, which would have replaced traditional Medicare entirely with a privatized system in which seniors would buy private insurance with limited subsidies from the government.
Republicans took a political pounding over last year’s Medicare proposal, which was widely seen as contributing to the special election loss of a traditionally GOP House seat in New York.
With that in mind, Republicans have made the case that Wyden’s involvement with Ryan’s latest Medicare proposal makes the plan more bipartisan, though a wide range of Democrats have sharply criticized the idea.
Like the House GOP’s 2012 budget, the new proposal does not include an outline for revamping Social Security.
The three appropriators on Ryan’s Budget Committee had been fighting to maintain the August debt-ceiling level of $1.047 trillion, and Rep. Mike Simpson (R-Idaho) hinted that appropriators would try to revert the figure to that level when the panel meets Wednesday to mark up the budget.
“We'll see what happens at mark-up,” Simpson said.
Members of the conservative Republican Study Committee (RSC), on the other hand, told The Hill that they would like to cut the budget more deeply.
Rep. Tim Huelskamp (R-Kan.) said leaders in both parties are at risk of “reneging” on the debt-ceiling deal known as the Budget Control Act (BCA).
“I guess I am learning that a majority of the House and Senate, and the president, apparently agree we're not going to follow the BCA,” Huelskamp said. “If the budget passes at $1.028 [trillion] or $1.047 [trillion] that is reneging on the Budget Control Act, which is the $950 [billion].”
Huelskamp said he “presumes” the RSC will offer an alternative budget with a lower spending cap.
Even though top officials in both parties have said they would like to overhaul the tax code, few in Washington think that process can be completed during the heat of a presidential election.
Both House Republicans and the administration want to prune out a wide range of credits and deductions in a tax overhaul. But Democrats have concentrated much of their fire on tax breaks for hedge fund managers and the oil-and-gas industry.
In guidance sent to the Budget Committee in March that helped Ryan produce his budget, Ways and Means Republicans criticized the president for not seeking to revamp the business and individual tax structures together, and for pushing to continue to tax corporations for profits made offshore.
The White House outline, the GOP lawmakers said, “falls woefully short: the rates are too high, the tax base is too narrow (and used as a tool to provide political favors); and the international reforms are anti-competitive.”
The Ryan budget would shift the United States to a so-called territorial system that would largely exempt a corporation’s foreign earnings from American taxation, and would not use loophole closures to increase net revenues for the government.
Mike Lillis contributed to this story.
This story was updated at 8:18 and 9:02 p.m.