GOP makes new offer on taxes, Medicare cuts

November 8, 2011 - 9:25 PM

WASHINGTON (AP) — With a Thanksgiving deadline fast approaching, the GOP members of a deficit-reduction supercommittee are pressing a plan to cut the deficit by about $1.5 trillion over the coming decade, showing flexibility on tax revenue increases for the first time while pressing curbs on Medicare spending and a less generous cost-of-living increase for Social Security beneficiaries.

The plan floated by Republicans, including tea party favorite Sen. Pat Toomey of Pennsylvania, would place sharp limits on the total amount of tax deductions and credits that a person could claim, in exchange for significantly lower income tax rates. At the same time, Republicans are willing to accept a net increase in individual income tax revenues of about $300 billion over the coming decade.

The proposal, described by aides in both parties, also would cut spending by about $700 billion, mixing a less generous cost-of-living adjustment for Social Security beneficiaries with further cuts to agency operating budgets and curbs to the booming growth of Medicare and the Medicaid health care program for the poor and disabled. Other revenues would come from proposals such as auctioning broadcast spectrum, raising Medicare premiums and increasing aviation security fees.

Republicans also support raising the Medicare eligibility age to 67 for future retirees, but GOP and Democratic aides offered different accounts of whether the idea was officially part of the proposal. Democrats said it was in the plan; Republicans say it was part of the discussion but not an official GOP position.

The supercommittee has been super-secret in its deliberations and each of the aides spoke on condition of anonymity because they were not authorized to speak publicly about the negotiations.

The GOP offer, discussed by a bipartisan subgroup of supercommittee lawmakers Monday evening, contrasts with a Democratic plan introduced last month that proposed revenue increases of about $1.3 trillion that would also be netted after a rewrite of the loophole-cluttered federal tax code. Both proposals are similar in concept to ideas discussed last summer in negotiations between House Speaker John Boehner, R-Ohio, and President Barack Obama.

Democrats dismissed the GOP plan as inadequate.

"I have yet to see a real, credible plan that raises revenue in a significant way to bring us to a fair, balanced proposal," said Sen. Patty Murray, D-Wash., the co-chair of the 12-member supercommittee.

During talks on legislation needed to increase the government's borrowing cap, Boehner and Obama discussed a complete overhaul of the tax code that would have garnered some $800 billion in new revenue over a decade.

But the Boehner-Obama talks fell apart over taxes and benefit cuts, and the final legislation included cuts to the day-to-day operating budgets of Cabinet agencies totaling $900 billion over a decade — and establishment of the deficit panel with unusual powers to develop a plan for further cuts. The panel is charged with coming up with $1.2 trillion in deficit cuts over a decade; failure to accomplish the goal would trigger automatic spending cuts across a wide range of federal programs.

The plan proposed Monday was more modest, congressional aides said, raising about $250 billion from individual tax reform and another $40 billion from using a new inflation adjustment when updating the income levels for tax brackets. An overhaul of the corporate tax code could raise another $60 billion, the aides said.

Aides to supercommittee Democrats attacked the proposal, saying the GOP plan for a top individual tax rate of 28 percent would give wealthier earners large tax cuts while sharply cutting back tax breaks important to middle class workers such as deductions for mortgage interest and state and local taxes. And they said the proposed tax increases were too small when measured against the nation's huge debt.

The GOP plan assumes that the full menu of Bush-era tax cuts — including a generous cut in the estate tax enacted last year — would be made permanent when calculating the revenue "baseline" from which to start tax reform.

Democrats said the $300 billion or so GOP revenue proposal was a pittance relative to the size of the deficit problem. The government ran a $1.3 trillion deficit in the recently-completed budget year.

Obama wants to eliminate the Bush tax cuts for upper-income earners, which would generate about $800 billion in revenue over the coming decade.

The top tax bracket is presently 35 percent and is set to rise to 39.6 percent when the Bush-era tax cuts expire at the end of next year.

Democratic aides said the offer was mostly spin and that the GOP tax proposals would wipe out tax deductions important to middle- and lower-income households to pay for rate cuts for the wealthy, but some Democratic members of the panel weren't as quick to dismiss it.

Asked whether Republicans were negotiating seriously, supercommittee member Sen. Max Baucus, D-Mont., said, "Oh, yes, I think so. On balance, yes."

Toomey was the chief sponsor of the offer but has support from other Republicans on the panel. The supercommittee is charged with producing legislation to cut $1.2 trillion from the deficit over the coming decade. The fact that Toomey, who was elected last year with tea party support, was willing to entertain higher tax revenues was a noteworthy break from an earlier GOP proposal forwarded two weeks ago that assumed revenue would come chiefly from non-tax sources like Medicare premiums and economic growth spurred by a simplified tax code.

"We've made a little bit of progress but it's not enough, in our judgment," said Sen. John Kerry, D-Mass., a member of the deficit panel. "We have some distance to go."