Congressional Republicans have for the first time retreated from their hard-line stance against new taxes, offering to raise federal tax collections by nearly $300 billion over the next decade as part of a plan to tame the national debt.
But Democrats rejected the offer Tuesday — along with the notion that Republicans had made a significant concession that could end the long-standing political impasse — leaving a special debt-reduction committee far from compromise with less than two weeks until its Thanksgiving deadline.
Democrats said the tax increases in the GOP offer would be dwarfed by major new tax cuts for the nation’s wealthiest households, including a reduction in the top income tax rate from 35 percent to 28 percent.
“They’re anxious to promote a certain concept with all of you,” Sen. John F. Kerry (D-Mass.), one of the negotiators, told reporters. “I’ll be very clear that whatever they put there doesn’t get the job done.”
Senate Minority Leader Mitch McConnell (R-Ky.) fired back that Republicans are “working diligently to get a solution” and accused Democrats of trying to block a deal. McConnell said he suspected that “the folks down at the White House are pulling for failure because, you see, if the joint committee succeeds, it steps on the story line that they’ve been peddling, which is that you can’t do anything with the Republicans in Congress.”
Members of the supercommittee had planned to continue talking Tuesday afternoon, but a bipartisan meeting was abruptly canceled, and neither side appeared optimistic about the prospects for a breakthrough.
“I have yet to see a real, credible plan that raises revenue in a significant way to bring us to a fair, balanced proposal,” Sen. Patty Murray (Wash.), the Democratic co-chairman of the panel, told reporters.
The latest skirmish comes as the 12-member supercommittee is struggling to come up with a plan to slice at least $1.2 trillion from projected borrowing over the next decade. Unless the committee can reach an agreement by Nov. 23 and lawmakers can push it through Congress before Christmas, the White House could be forced to slash the budgets at the Pentagon and other agencies by about 9 percent starting in January 2013.
The going has been slow, with lawmakers deeply divided over how much of the savings should come from tax increases and how much from spending cuts, including reductions to Social Security and Medicare, the biggest drivers of future borrowing. Until this week, Republicans had been adamantly opposed to any outright tax increases, arguing that federal tax collections should be allowed to rise only as a result of stronger economic growth.
Late Monday, some GOP supercommittee members finally crossed the anti-tax line that their leaders had drawn in the sand. In a meeting that dragged on nearly to midnight, Sens. Patrick J. Toomey (Pa.) and Rob Portman (Ohio) and Reps. Dave Camp and Fred Upton, both of Michigan, presented a new proposal to Democrats Kerry, Sen. Max Baucus (Mont.) and Rep. Chris Van Hollen (Md.).
The offer proposed to hit the panel’s $1.2 trillion target — and to save $1.5 trillion through 2021, counting reduced interest payments on the national debt — by cutting $700 billion in spending and raising about $600 billion in new revenue.
The spending cuts would include $240 billion from agency budgets, about $275 billion from federal health programs and about $150 billion from using a less-generous measure of inflation in federal formulas, including the annual cost-of-living adjustment for Social Security, according to people with knowledge of the plan.
The new revenue would be split between outright tax increases and other forms of government income, including higher fees for an array of federal services, asset sales and higher Medicare premiums for well-off seniors — provisions that are more typically counted not as revenue but as income that helps to reduce spending.
The proposal included about $300 billion in actual tax increases, marking the first time Republicans offered to acquiesce to that key Democratic demand. The offer envisions a tax code rewrite that would lower rates for everyone while raising overall tax collections by $250 billion, mainly by limiting the value of itemized deductions such as write-offs for home mortgage interest.
In addition, the Republicans would raise about $40 billion by applying the new inflation index to the tax code, a move that would push people more rapidly into higher tax brackets.
Senior Republican aides described the proposal as a “significant concession” on taxes. But the tax increases would be offset by permanently extending the George W. Bush-era tax cuts past their 2012 expiration date, a move that would increase deficits by about $4 trillion over the next decade. In the past, Democrats have demanded at least $1 trillion in fresh revenue in exchange for extending the Bush tax cuts.
Kerry said the offer represents “a change” in position for Republicans, though he said, “I would not characterize it as a substantial change yet.”
Other Democrats challenged the notion that Republicans had made any major concessions. Lowering the top rate from 35 percent to 28 percent would eat up most of the extra revenue generated by limiting itemized deductions, they said, leaving very little savings to reduce future borrowing.
“They would plow all of the money back into lowering the rates,” said a Democrat with knowledge of the offer who spoke on the condition of anonymity to discuss the closed-door negotiations. “It’s impossible to net out $250 billion, unless they’re willing to raise rates on capital gains and dividends, and I don’t think that’s what they’re talking about. They either think we’re morons or desperate.”
Democrats also scoffed at the “other revenue” provisions, noting that Republicans at one point suggested raising as much as $5 billion over the next decade by permitting oil drilling in Alaska’s Arctic National Wildlife Refuge — a move that is extremely controversial and opposed by many Democrats.
GOP aides played down the ANWR idea, saying it is no longer part of the discussions.