WASHINGTON -- The only responsible way to spare the middle class, cut the deficit and avoid falling off the rapidly nearing "fiscal cliff" is to cut entitlement programs and craft a tax-reform plan that lets rates on the wealthiest Americans go back up, New York Democratic Sen. Chuck Schumer argued Tuesday.
As part of the debate over how to balance the impending expiration of the Bush-era tax cuts and other breaks with deficit reduction, Schumer argued that it's time for everyone to stop talking about the model set during the last tax reform in 1986, which included cutting rates across the board, and to set a new standard.
The model offered most recently in that vein came out of President Barack Obama's deficit reduction commission, headed by Alan Simpson and Erskine Bowles. Their plan was embraced by many in both parties, including House Minority Leader Nancy Pelosi (D-Calif.). Their plan called for lowering all tax rates, with a proposed high end of around 28 percent, to be paid for by closing tax loopholes, which would also cut the deficit.
The plan didn't spell out which loopholes would be closed in order to compensate for lower rates. But Schumer pointed to studies that suggested families earning around $100,000 would see their taxes go up by about $1,000 under Simpson-Bowles' "illustrative" plan.
"In order to raise enough money to both reduce tax rates and cut the deficit, you would need to slash deductions and credits on a far greater scale than we ever did in 1986," Schumer said. "Middle-income earners would not be spared."
His way out of that bind was to suggest letting the Bush tax cuts expire on the top tiers, while keeping the cuts for everyone else. He would also let capital gains rates rise slightly from the current 15 percent, though not to the level they were before the Bush-era cuts.
Republicans have been adamant that the cuts must be preserved, but Schumer predicted they might be amenable to more revenue after the elections, simply because it would have to cost the middle class if the GOP spares the wealthy. He also said Democrats on their side could offer massive cuts to entitlement programs such as Medicare.
"You can save hundreds of billions of dollars and still keep the benefit structure," Schumer said. "Now, it's tough medicine, lots of people won't like it, but you can do that."
Schumer's proposal comes even as a bipartisan "Gang Of Eight" senators has been meeting and working on ideas based around Simpson-Bowles. And it's the latest sign that Democrats see a chance to push tax reform during the lame duck session, after the election but before the newly elected Congress begins in January. Senate Majority Leader Harry Reid (D-Nev.) has also suggested a deal could be done before the new year, although many other lawmakers have been hinting that some sort of stopgap should be passed until the new Congress can go to work.
Initial reactions from Republicans were not positive.
"Senior Democrats are now openly acknowledging their plan to hold the economy hostage to massive, job-killing tax hikes, and espousing the fiscally irresponsible view that says the country should be driven off the fiscal cliff rather than Congress working toward bipartisan solutions to reform and strengthen entitlements without killing jobs," said Senate Minority Leader Mitch McConnell in a statement. "He admits that Democrats don't intend to reform entitlements or our tax code as a means to restore fiscal sanity, create jobs, or protect our seniors, but rather to use the effort as a lure to entice support for even more job-killing tax hikes."
McConnell added that he and House Speaker John Boehner (R-Ohio) are calling for a one-year extension of all the tax cuts to buy time to work on a tax overhaul.
Schumer, however, suggested that dragging out tax reform would actually make it harder, giving special interests more time to put well-financed thumbs on the scales. And he argued that whenever reform is done, the arithmetic remains the same.
"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 said.
He predicted that even if Republicans win at the polls in November, they'll still be in the same place.
"The basic math is still going to be there. They will have to abandon one of three points of the stool. They will have to abandon preventing tax increases on the middle class," Schumer argued. "I don't think they want to do that, or they'll have to abandon lowering rates on the wealthy, or deficit reduction. I think that if they're in charge, they're not going to want to have lack of deficit reduction on their shoulders."
Michael McAuliff covers Congress and politics for The Huffington Post. Talk to him on Facebook.
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