By Richard Cowan and Kevin Drawbaugh
WASHINGTON (Reuters) - A menu of tax reform ideas was being reviewed by Democrats ahead of Thursday's first meeting of a special congressional deficit-cutting panel, underlining their desire to put taxes on the panel's table despite Republicans' distaste for the prospect.
Documents obtained by Reuters included long lists of tax initiatives and other possible measures that were drafted by staff aides and presented as options to Democratic lawmakers on the tax-writing House Ways and Means Committee.
There were more than 20 possible steps to close tax loopholes and other measures offered as bargaining positions that Democrats might take into the Joint Select Committee on Deficit Reduction's high-profile negotiations.
Markets will be watching the so-called "super committee" closely for signs of a serious effort to stem Washington's river of red ink. The panel's formal goal is to find at least $1.2 trillion in new budget savings over the next decade.
One of the staff documents listed initiatives such as killing controversial tax breaks for major oil companies and cutting the value of tax breaks for the wealthy.
Other options included estate and gift tax changes, as well as ending a depreciation tax break for corporate jets -- a measure President Barack Obama highlighted earlier this year.
Beyond taxes, the documents also presented possible cost-saving options for Medicare, the government-backed healthcare plan for the elderly. One option included freezing pay for some providers and reducing drug costs for people who are also eligible for Medicaid, the healthcare program for the poor that pays a lower rate for drugs. Such a move could save $120 billion over 10 years.
Some of the proposals discussed are highly controversial, including raising the age of Medicare eligibility to 67 from 65. The staff discussion says the move would shift more costs on to employers who provide healthcare coverage to workers.
Another option would save money by changing the inflation calculation for annual benefit increases.
This idea gained momentum during the debt ceiling debate, but the staff notes it is an extremely controversial proposal and said at least one Republican on the super committee, Representative Fred Upton, has indicated opposition to it.
STAFF PRESENTS OPTIONS
"Members have not discussed these documents," said Josh Drobnyk, spokesman for the Ways & Means Committee.
"Staff has prepared for review multiple revenue provisions that may come under consideration for a balanced approach to job creation, tax reform and deficit reduction, as well as an analysis of changes to entitlement programs that have been proposed by others during previous negotiations," he said.
The 12-member super committee is scheduled to hold its first meeting on Thursday morning. It was expected to deal mostly with organizational issues. Its first substantive hearing on policy was slated for next Tuesday.
The special committee has a November 23 deadline for trying to approve at least $1.2 trillion in new government savings over 10 years. Congress will then have until December 23 to vote on the committee's recommendations. If either deadline goes unmet, automatic budget cuts will begin in 2013.
As a bitter struggle over deficit reduction has unfolded this year, Republicans have fiercely resisted tax increases, but their stance has softened somewhat in recent weeks.
House Ways and Means Committee Chairman Dave Camp, a Republican, in a mid-August interview with Reuters, would not rule out tax increases, saying "everything is on the table." Camp is also a member of the super committee.
Another proposal in the staff documents would hit financial market players, such as dealers in commodities, securities and other instruments, by requiring them to treat their income as ordinary income, instead of at a lower 15 percent rate.
A similar proposal would subject the income of hedge fund and private equity managers to standard income tax rates.
In an attempt to clamp down on tax dodgers, one option would allow the government to seize the passports of individuals who owe $100,000 or more in unpaid taxes. The staff paper said that a recent government investigation found more than 224,000 people holding passports owed more than $5.8 billion in unpaid federal taxes as of 2008.
Separately, House Armed Services Committee Chairman Howard McKeon on Wednesday warned against big defense cuts by the super committee, telling reporters he hoped the panel would look for cuts elsewhere.