WASHINGTON – 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 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 at the National Press Club.
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.
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.