End to tax 'loopholes' could also be tough sell for Democrats

Democrats empowered by election victories are pushing Republicans to deliver on tax changes to increases revenue and avert a looming fiscal crisis. But they face growing problems on their own front – a deep-pocket campaign to protect entitlements and some tax changes that if accepted could reach middle class voters.

Among the tax changes being considered are closing some of the bigger tax expenditure or so called “loopholes” -- including those on mortgage interest and retirement plans.

While Democrats have targeted the highest wage-earners, most experts agree that closing the loopholes for just a few percent of Americans would generate little revenue, which could result in cuts reaching into the middle class.

“There’s a tension between the amount of dollars (Democrats) want and who they want to raise taxes on,” Alex Brill, a tax policy expert at the conservative think tank American Enterprise Institute, said Tuesday. “You cannot have it both ways.”

President Obama and Congress returned to Washington after the elections with a perceived mandate to reach a deal on reducing the growing federal deficit and averting a default agreement that would trigger massive cuts to the federal budget starting Jan. 2.

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Roughly $110 billion would be cut from the budget next year, and $1.2 trillion would be cut over the next 10 years.

The president has focused on increase taxes on annual revenue above $250,000 to raise $1.6 trillion in revenue.

Democrats have suggested a willingness to accept closing the loopholes, instead of forcing tax increases on the highest wage earners. And in exchange, Republicans have asked Democrats to cut entitlement programs such as Medicare and Social Security to reduce record federal spending.

Meanwhile, Capitol Hill Democrats also face the possibility of having to tell voters back home the deal included an end to their tax credit on mortgages, retirement money or employer-sponsored health insurance, as big unions pressuring them to protect entitlements.

AFSCME, NEA and SEIU are running TV ads in Colorado, Virginia and Missouri urging Senate Democrats while negotiation to protect Social Security, Medicare, Medicaid and education, as reported first by Politico.

“How do we move our country forward and reduce the deficit? By creating jobs and growing our economy, not by cutting programs that families rely on most,” begins the ad, targeting Sens. Michael Bennet and Mark Udall in Colorado, Mark Warner and Jim Webb in Virginia and Claire McCaskill in Missouri.

House Majority Whip Kevin McCarthy, told Fox on Monday that “We haven’t heard where (Obama’s) cuts are” and suggested House Minority Leader Nancy Pelosi and other Democrats lack unity over the loophole proposal.

“She keeps changing the game plan,” the California Republican said.

Some of the other bigger tax expenditure or loopholes that could be changed include:

-- Medicare benefits for senior

-- Capital gains rates

-- Earned income tax credit

-- Charitable contributions