WASHINGTON (MCT) — As a lofty political debate over taxes and spending plays out on the presidential campaign trail, a more practical one is unfolding this week in Virginia as eight senators try to strike a bipartisan deficit-reduction deal.
The senators are holed up in a Mount Vernon conference room seeking a way to avoid the so-called fiscal cliff — the year-end confluence of automatic tax increases and budget cuts that could stagger the economy and American households. Failure to act could slice half a percentage point off economic growth next year and deliver an average $2,000 tax increase.
No deal is expected before the November election, but the talks are intended to help provide a framework for a lame-duck session of Congress. The “Gang of Eight” — four senators from each party — is laboring to reach agreement on a nearly $4 trillion deficit-reduction plan to curb the nation’s debt.
On Tuesday, Sen. Charles E. Schumer, D-N.Y., said Democrats would not agree to any deal that failed to raise income tax rates on top earners.
Speaking for himself rather than the party, Schumer drew on assessments from nonpartisan analysts that lowering tax rates for everyone, as GOP presidential nominee Mitt Romney has proposed, could result in higher taxes for households earning less than $200,000 because tax deductions that help the middle class would have to be eliminated. Romney disputes that but has not said which deductions he would slash.
“It is an alluring prospect to cut taxes on the wealthiest people, reduce the deficit and hold the middle class harmless, but the math dictates you can’t have it all,” Schumer, who is not among the eight senators, said in a speech at the National Press Club. “The promises of lower rates amount to little more than happy talk when the math behind them doesn’t add up.”
Republicans have been unwilling to enact tax reform with higher rates to raise revenue, as many argue that the deficit problems are on the spending side of the ledger, not the tax column.
Sen. Mitch McConnell of Kentucky, the Republican leader, called Schumer’s remarks “Thelma and Louise economics,” arguing that his views would drive the nation off the fiscal cliff.
“Sen. Schumer seems to be off on an island with these remarks,” said Kevin Smith, a spokesman for House Speaker John A. Boehner, R-Ohio.
Taxes are set to rise as George W. Bush-era rates expire at the end of the year. At the same time, $110 billion in spending cuts in defense and domestic programs will be triggered on Jan. 2, in accordance with the summer 2011 debt-ceiling deal, after a “supercommittee” failed to settle on a more tailored package of spending cuts and new revenue.
Progress toward a resolution has been slow in Washington’s polarized environment. Republicans refuse to raise new tax revenue while Democrats are unwilling to cut Medicare, Medicaid and other domestic programs without raising taxes on wealthier households.
The presidential contenders take starkly different approaches that could provide a mandate for Congress after Nov. 6, although many doubt a deal could be reached in the short lame-duck session.
Romney wants to lower all income tax rates, dropping the top bracket to 28 percent from 35 percent, and backfill the lost revenue by doing away with loopholes.
In contrast, President Barack Obama has said he would veto any deal that keeps the upper-end income tax rates at today’s levels, and he wants to push the top rate to 39.6 percent for income that exceeds $250,000 a year for married couples, or $200,000 for individuals.