A top Senate Democrat said Tuesday that tax rates on the wealthy should go up and that tax breaks benefiting the middle class must be preserved.
The move by Charles Schumer of New York, the No. 3 Democrat in the Senate, is a direct challenge to a traditional tax reform model that lowers tax rates for all and finances the cuts through a broad assault on tax breaks and loopholes. It came less than a month before Election Day.
Schumer rallied behind longstanding tax plans by President Barack Obama to hike rates on the wealthy while blasting as unworkable the more traditional tax reform model pushed by GOP nominee Mitt Romney -- and some Democrats.
Schumer said that efforts to replicate tax reform along the lines of a 1986 effort backed by President Ronald Reagan and prominent Democrats would end up increasing taxes on the middle class and worsen the recent rise in income inequality. That's because the value of big tax deductions and credits like breaks for mortgage interest and college savings could easily exceed the savings from lower tax rates while the wealthy would benefits from rates cuts that exceed the value of their deductions.
He said such an approach "is almost guaranteed to give middle-income earners the short end of the stick."
That's because "in order to raise enough money to both reduce rates and cut the deficit, you would need to slash deductions and credits on a far greater scale than we ever did in 1986. Middle-income earners would not be spared."
Schumer also criticized the bipartisan approach taken by Obama's deficit commission, which is broadly modeled on the 1986 effort, but also siphons off about $2 trillion in revenue over a decade to curb the deficit.
A bipartisan group of eight senators seeking to build on the Obama commission, headed by former White House chief of staff Erskine Bowles and retired GOP Sen. Alan Simpson, is meeting this week in the Washington suburbs to see if it can make progress toward an agreement.
Schumer's remarks and the meeting of this so-called "Gang of Eight" come as lawmakers mull a post-election lame duck session that will have to confront the question of what to do about a host of expiring tax cuts enacted in 2001 and 2003 and renewed two years ago.
The expiration of the Bush-era tax cuts, combined with automatic steep across-the-board cuts to the Pentagon and domestic programs, have been dubbed the "fiscal cliff," and lawmakers are determined to try to avert it and the damage it threatens to the fragile economy starting in January.
It's unclear what role Schumer's suggestions will play in the debate. His approach is a nonstarter with most Republicans.
Schumer also said that some of the money from curbing tax breaks should go to reducing the deficit and that the top tax rate should go back to Clinton-era levels. He also proposed increasing the tax rate on capital gains above 15 percent.
"It would be a huge mistake to take the dollars we gain from closing loopholes and put them into reducing rates for the highest income brackets, rather than reducing the deficit,' Schumer said. He ruled out raising taxes on families making less than $250,000 a year.