Democrats and Republicans Still Split on Deficit-Reduction Deal

Democrats on the congressional supercommittee have proposed a $2.3 trillion deficit-reduction plan that calls for equal amounts of tax increases and spending cuts.

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The proposal includes a trigger that would raise $650 billion if the U.S. tax code isn’t revamped by the start of 2013. Tax writers would receive instructions to cap individual tax rates at 35%, overhaul corporate taxation, and maintain the progressiveness of the current code.

The 12-member committee, tasked with trimming the deficit by at least $1.2 trillion through 2021, has until Thanksgiving to have a budget in place, otherwise automatic spending cuts that equal that amount will be triggered. But with the deadline less than two weeks away, Democrats and Republicans remain hundreds of billions of dollars apart on tax revenue.

Though both parties have presented fresh sets of proposals this week, committee members said yesterday that they haven’t yet reached an agreement. “We are at a bit of an impasse at the moment,” said Senator Jon Kyl, an Arizona Republican.

Democrats presented their proposal at a November 7 meeting where Republican Senator Pat Toomey of Pennsylvania outlined a proposal that would reduce the top individual tax rate to 28%. Democrats immediately rejected his proposal, saying it would shift the tax burden away from high-income taxpayers.

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“We have a big gap with respect to where we are on revenues,” said Senator John Kerry, a Massachusetts Democrat and one of the twelve committee members. The Republicans’ proposal “will not work; we’ve told them that very directly,” said Kerry. “This is not complicated: They’ve got to put real revenue on the table in a way that helps us get the job done.”

Still, Republicans and some Democrats have described Toomey’s proposal as a significant step forward, as it does include some net tax increases, signaling that Republicans’ hard line against increasing tax revenue might be weakening.

Democrats’ proposal would cut the federal budget deficit by $2.3 trillion over the next decade, with $1 trillion coming from spending, $1 trillion from revenue, and the last $300 billion from interest savings. The revenue increases would begin with what the document refers to as a $350 billion “down payment” of “miscellaneous revenue provisions.”

The proposal includes $350 billion in cuts to Medicare, $200 billion in cuts from other mandatory programs, and $400 billion in cuts to discretionary programs, with $200 billion coming from defense spending and $200 billion from non-defense programs.

The proposal would also limit itemized deductions so that claimants receive benefits of no more than 2% of their adjusted gross income. Another $325 billion in savings would come from a surcharge on individual income tax liability before credits, though details of that surtax were not included in the document.

Conversely, the Republican proposal would cut only about $1.2 trillion from the budget deficit over the next 10 years, with about $700 billion coming from spending reductions. Their proposal would generate about $300 billion in additional tax revenue, while generating several hundred billion dollars from non-tax-revenue sources, such as asset sales.

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Democrats on the panel are waiting for Republicans “to bring us back a fair and balanced proposal,” said supercommittee co-chairwoman Patty Murray.