WASHINGTON -- Under their latest proposal to the deficit reduction super committee, Democrats would agree to undertake comprehensive tax reform that included a pledge to avoid letting Bush-era tax cuts for the wealthy expire.
According to a private document, the authenticity of which was confirmed by a leadership aide, super committee Democrats are eyeing between $950 billion and $1 trillion in revenue raisers and tax hikes as part of a $2.3 trillion deficit reduction package. Between $300 billion and $350 billion of that would come from what one congressional aide described as "low-hanging fruit" -- ending tax incentives for corporate jet owners, closing loopholes for oil and gas companies, changing ethanol subsidies, and so on.
The remaining $650 billion in revenue that committee Democrats are targeting would be raised through a set of "Fast Track Procedures For Tax Reform." As part of those procedures, Democrats would agree to three guiding principles: "(a) corporate tax reform to enhance competitiveness, (b) an individual rate no higher than 35% and (c) a distribution of changes that ensures a tax code as progressive as current law."
Another Senate aide, familiar with discussions, insisted that the document was not a formal Democratic plan but rather a "proposal that's been discussed."
As the law currently stands, the Bush-era tax cuts are set to expire at the end of 2012, at which point the rates on top earners will rise back up to 39.6 percent. Had the tax cuts been allowed to expire at the end of 2010, it would have generated an extra $690 billion in tax revenues over ten years, according to estimates based on Congressional Budget Office and Joint Committee on Taxation data. By committing to place a cap on those rates at 35 percent -- in exchange for pursuing a tax reform process that produces $650 billion in revenues -- Democrats are granting Republicans a potentially significant concession, one that could scrap a major party talking point about higher-income Americans needing to shoulder a larger share of the deficit burden.
The White House has made no secret of the fact that it wants to pursue comprehensive tax reform over the next year. But the president has also insisted that he will veto efforts to extend the Bush-era tax cuts for the wealthy, and both he and his party have tried to make income inequality a major theme of the 2012 campaign season.
"Will The President keep his promise?" emailed one top Democratic operative familiar with the proposal. "The Senate Democrats' proposal would make the Bush tax cuts permanent for millionaires. More tax giveaways to the top one percent is a complete capitulation to Republicans."
For the super committee Democrats proposing the cap, though, the concession makes tactical sense. For starters, if the committee succeeds in passing comprehensive tax reform, then the debate over the Bush-era tax rates is rendered moot. More than that, they argue, it gives Republicans an incentive to negotiate -- both through carrots (the promise of keeping the lower tax rates for the wealthy in place) and sticks (the threat that if comprehensive tax reform isn't completed, those Bush-era rates could still expire).
"Letting them expire is still leverage if Republicans don't agree to that deal or if tax reform doesn't meet that criteria," said one top Democratic Senate aide. "The question is what will tax reform look like if it really happened."
"It's a lot higher than 28 percent," the aide added, in reference to the House GOP budget authored by Rep. Paul Ryan (R-Wis.) that would cap income tax at that level.
On top of that, Democrats on the super committee have added other inducements or "triggers" to make Congress undertake tax reform. Under their proposal, lawmakers would be given until January 1, 2013 to figure out tax reform legislation that would produce the targeted $650 billion in revenue. If they don't meet that deadline, then two triggers would be pulled: a limit on itemized deductions for higher income taxpayers, and "a deficit reduction charge on income tax liability before applications of credits." Those provisions would create an estimated $650 billion in revenue between them.