(Updates with comment from Murray starting in 18th paragraph.)
Nov. 9 (Bloomberg) -- Democrats criticized a Republican plan to cut the U.S. deficit by overhauling the tax code as a windfall for the wealthy even as the plan signaled a new willingness by Republicans to include tax revenue in any agreement to slash the deficit.
A Democratic staff analysis said the plan would lower rates for high-income Americans while raising taxes on the middle class. Republicans say the plan includes $300 billion in higher tax revenue to help cut the deficit, most of which would come from reducing tax breaks for the wealthy.
The dispute has stalled efforts to reach agreement on a $1.2 trillion deficit-cutting plan by the supercommittee as the 12-member bipartisan panel approaches its Nov. 23 deadline.
“We are at a bit of an impasse at the moment,” said Senator Jon Kyl, an Arizona Republican on the supercommittee.
The plan would provide a “significant tax cut for those with income above $200,000,” according to the Democratic analysis provided by a congressional aide who wasn’t authorized to speak publicly.
Republicans proposed setting the top marginal tax rate as low as 28 percent, compared with the current 35 percent, while reducing individual tax deductions and exclusions and changing the way income tax brackets are indexed to inflation. It also would raise the Medicare eligibility age to 67 from 65.
Senator John Kerry, a Massachusetts Democrat on the supercommittee, rejected the plan today, saying, “We have a big gap with respect to where we are on revenues.” The Republicans’ proposal “will not work -- we’ve told them that very directly,” he said.
“This is not complicated: they’ve got to put real revenue on the table in a way that helps us get the job done,” said Kerry. Supercommittee Democrats want more than $1 trillion in additional revenue.
A Republican aide, who wasn’t authorized to speak publicly, said the Democratic analysis is flawed because the Republican plan would set major limits on tax deductions that primarily benefit the wealthy. The aide said the plan, offered earlier this week by Senator Pat Toomey, a supercommittee member and Pennsylvania Republican, reduces everyone’s income tax rates by 20 percent and is more progressive than the current tax code.
“We want to find a solution,” Toomey said. “We’re still working.”
Republicans on the panel offered the plan in an effort to break a partisan impasse over tax increases in exchange for spending reductions to cut at least $1.2 trillion from the deficit. Until now, Republicans had refused to include higher tax revenue as part of a long-term debt deal.
Senator Dick Durbin, the chamber’s second-ranking Democrat, said it is “definitely” encouraging that Republicans put tax increases on the table.
“The fact that some Republicans have stepped forward to talk about revenue, I think, is an invitation to Democrats to step forward and talk about entitlement reform, as well as spending cuts,” said Durbin, of Illinois. “Therein lies the core of an agreement.”
Tennessee Senator Lamar Alexander, the chamber’s No. 3 Republican, said, “Republicans have put revenues on the table, Democrats have put entitlements on the table -- we need to put more of each on the table and get a result.”
Senator Mike Crapo, an Idaho Republican, said it’s “very significant” that Republicans are now putting tax increases on the table. “It indicates that there is the ability to achieve not only the target” of the supercommittee “but to achieve a bigger solution” to long-term deficits, he said.
The Democratic staff report said that lowering the top marginal tax rates under the Toomey plan could cost about $3.2 trillion over 10 years. To compensate for those tax cuts, Congress would have to reduce personal and dependent exemptions by 75 percent, and reduce all itemized deductions, including the one for home-mortgage interest, and all personal credits, including the child tax credit, the report said.
According to Republicans, their proposal would cut about $1.2 trillion from the deficit over 10 years, with about $700 billion of that coming from spending reductions.
Supercommittee co-leader Patty Murray, a senator from Washington, said after meeting with fellow Democrats on the panel that members of her party are waiting for Republicans “to bring us back a fair and balanced proposal.”
“They clearly understand that the proposal that was given to some of our members was not fair and balanced,” she told reporters.
The 12-member, bipartisan supercommittee faces a Nov. 23 deadline for agreeing on a plan to carve $1.5 trillion out of the federal budget. If the panel doesn’t agree, or if Congress rejects its recommendations, $1.2 trillion would automatically be deducted from defense and non-defense programs beginning in 2013.
--With assistance from James Rowley and Brian Faler in Washington. Editors: Laurie Asseo, Justin Blum
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