WASHINGTON – Republicans floated a new deficit-reduction proposal to the congressional supercommittee that breaks from their no-new-taxes stance, but the offer was dismissed Tuesday by Democrats because it would lock in lower income tax rates for the wealthiest American households.
The $1.2-trillion offer from the GOP comes as Republicans are under pressure to show that their anti-tax commitment will not doom the committee’s efforts. The supercommittee is deadlocked as it tries to agree on a proposal, by its Thanksgiving deadline, to cut federal deficits over the next decade.
Democrats have offered a nearly $3-trillion package that would cut Medicare and other entitlement programs, but only if Republicans agree to add new taxes to the mix.
Sen. John Kerry, D-Mass., said the GOP proposal showed a “slight” but “not substantial” change in position.
It “doesn’t get the job done and we’ve got some distance to travel,” said Kerry, one of 12 members on the committee that includes six lawmakers from each party.
Republicans familiar with the proposal said it was offered by a GOP member on the panel, not all Republicans.
Both sides retreated behind closed doors on Tuesday as talks continued. Failure to strike a deal could raise the prospect of another downgrade to the U.S. credit rating and jolt the financial markets during the holiday shopping season.
The Republican proposal is the first time the GOP has openly considered using tax revenues for some amount of deficit reduction.
The GOP plan would essentially swap lower tax rates – ending the long-running debate over the expiring President George W. Bush-era tax breaks – for new limits on itemized tax deductions used primarily by wealthier households, such as the mortgage interest deduction on second homes.
Republicans estimate that closing or limiting such itemized deductions would generate $250 billion in new tax revenue over 10 years, some of which would be applied to the deficit and the rest would be used to lower income tax rates across all brackets.
The top income tax rate under the GOP proposal would drop permanently to 28 percent from the current 35 percent enacted under Bush. If the break is allowed to expire at the end of 2012 as it is scheduled to do, the top rate rises to 39 percent.