The Big Break? Taxes Remain Major Unknown In Potential Grand Deficit Bargain

Two Congressional leadership aides — one Democratic, one Republican — confirmed elements of Wednesday night’s big developments in high-stakes talks to increase the national borrowing limit.

President Obama and leaders on Capitol Hill have committed themselves to moving ahead with a larger deficit reduction deal than negotiators once thought possible in the weeks ahead. In sum, Obama and House Speaker John Boehner (R-OH), along with other GOP and Dem leaders are now aiming for a 10-year goal of $4 trillion in deficit reduction, which would include defined cuts in entitlement, defense, and domestic discretionary spending. The cuts would amount to about 75 percent of the overall savings, and the biggest question now is whether the GOP will truly give ground on taxes — in specific ways, that produce real revenue. The alternative is that those changes will remain ill-defined in ways that fail to guarantee deficit reduction, and convince already-uneasy Democrats to throw up their hands.A GOP aide with knowledge of the discussions insists that tax rate increases remain off the table, including the expiration of the Bush tax cuts, but that Boehner may be amenable to a solution that simplifies and lowers individual and corporate tax rates, while ending preferences, loopholes, and expenditures — including familiar beasts like subsidies for big oil companies — and perhaps other reforms to be named later.

A similarly keyed-in Democratic aide confirms the options under discussion would result in new tax revenues. One option recently under discussion — described here — would reduce Social Security and federal pension Cost of Living Adjustments, but simultaneously generate billions of dolloars in new tax revenue every year.

This won’t sit well with swaths of the Republican party. Asked if House Majority Leader Eric Cantor (R-VA) would support a framework that involved significant new tax revenue, his spokesman Brad Dayspring said, “No, Eric doesn’t support raising taxes.”

It’s still unclear how Obama and Boehner would reach such major spending cuts. Particularly unclear are the defense and domestic discretionary spending cuts being considered. On the entitlement side, perhaps in addition to the COLA changes, principles have discussed reducing provider payments or changing provider payment formulas in Medicare and Medicaid. Republicans have pushed fairly hard for further means-testing of Medicare — either greater cost-sharing, or reduced benefits for more affluent seniors. Some top Democrats back this approach. But most have argued against any direct benefit cuts, and would likely balk if the new standards cut into benefits for too many people.

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