Deficit Panel Inches Along

New GOP Proposal Is First Sign of Movement Toward Super Committee Deal

Posted November 8, 2011 at 5:52pm

Super committee Democrats wanted Republicans to come back at them with a revised offer for deficit reduction — and though the GOP did just that Tuesday, it was immediately clear that the second Republican proposal was no more palatable to Democrats than the first.

But the new plan marked the first sign of movement by the GOP on the question of whether some taxes can be raised to achieve the panel’s $1.2 trillion to $1.5 trillion deficit reduction target.

Republicans came to the table with a package — crafted in large part by Sen. Pat Toomey (R-Pa.) — worth $1.2 trillion in savings over the next decade, according to multiple sources of both parties familiar with the talks. The new GOP plan would include $250 billion in savings from eliminating tax deductions for high earners, $40 billion in changing how the consumer price index is calculated, and various other non-tax savings that had been included in the previous Republican offer.

In exchange for raising some taxes, the GOP proposal would lock in the rates of the 2001 Bush tax cuts, which were extended last winter by President Barack Obama. Democrats, both inside and outside the room, widely panned the idea and were quick to highlight that allowing those tax cuts to expire could bring in $3 trillion to $4 trillion of savings over 10 years.

“In other words, locking in tax cuts for the very wealthy? Right? Then adding close to $4 trillion to the deficit? Is that correct? I’m not going to get into detail, but I think you get an idea,” Rep. Chris Van Hollen (D-Md.) said wryly to a small group of reporters outside the Senate Foreign Relations room where several Democratic Members met Tuesday afternoon.

It was not immediately clear whether the new Republican plan would impose the same levels of Medicare cuts to beneficiaries, to the tune of $200 billion, as their first offering proposed. It would, according to both Democratic and Republican sources, drop the marginal tax rate to 28 percent, which one top Democratic aide called “a raw deal if you’re a middle-class taxpayer.” This source said it likely would be impossible to both lower tax rates to the Republicans’ proposed levels and hit their advertised savings just by eliminating tax code deductions.

For context, the Bowles-Simpson recommendations suggested capping the individual tax rate at 28 percent and eliminating deductions but also addressed taxes on capital gains and dividends, neither of which were broached in the current GOP offering.

“I have yet to see a real, credible plan that raises revenue in a significant way to bring us to a fair and balanced proposal. I am open to one,” said Joint Committee on Deficit Reduction Co-Chairman Patty Murray (D-Wash.), in a rare critique of anything related to the panel.

The flurry of news Tuesday surrounding the secretive panel played out against a backdrop of progress that has been incremental at best.

Toomey met with Sens. Rob Portman (R-Ohio) and Max Baucus (D-Mont.) and House Ways and Means Chairman Dave Camp (R-Mich.) Monday night. Throughout the course of super committee negotiations, various small groups and member-to-member meetings have taken place, even when the full panel has not convened to negotiate. The full super committee has not met behind closed doors since last Monday, though the Democratic and Republican contingents have met among themselves since then.

But there may be some hope for future agreement in Tuesday’s developments, even if there are only two weeks left before the panel’s Nov. 23 deadline.

“It’s a concession that we’re willing to entertain it,” a senior Senate Republican aide said of a possible tax increase. “This is a significant change.”

A Democratic leadership aide, who wanted to be clear that the current GOP offering was unacceptable, made a similar observation.

“It could be productive that Pat Toomey is saying that tax reform does not have to be revenue-neutral,” the aide said. “They’ve effectively shifted their position.”

The question the super committee and Congressional leaders face now is what’s next for the talks. It was unclear whether Democrats could build off any piece of the GOP offer. And it remains to be seen whether Republicans could get conference-wide support in the House or Senate for any revenue increases at all, a problem that has plagued multiple debt talks from the get-go.

Moreover, it seems that Democrats and Republicans aren’t on the same page about what an acceptable ratio of cuts-to-revenues would be. Both parties seem to be basing their expectations on this summer’s negotiations for a grand bargain between Speaker John Boehner (R-Ohio) and President Barack Obama, where the ratio was approximately 3-to-1 cuts-to-savings. But Democrats appear to believe that the revenues from the super committee would need to be higher to account for cuts that were made immediately upon enactment of the debt limit increase this summer. That position was reflected in the Democrats’ initial offering for the super committee, which was half cuts, half revenues.

Republican sources indicated the overall composition of an agreement should include significantly more cuts.

Steven T. Dennis contributed to this report.