WASHINGTON – Seeking an alternative to federal budget cuts set to begin next month, Senate Democrats are considering a way to generate new revenue: the "Buffett Rule," the requirement that millionaires pay a guaranteed minimum income tax rate.
Democratic aides are looking for ways around the draconian cuts that will happen automatically if Congress does not intervene. Their approach is being modeled on President Obama’s desire for a “balanced” plan that replaces the cuts with equal parts new revenue and spending reductions.
“The American people made it very, very clear they want a balanced approach to the fiscal problems,” said Senate Majority Leader Harry Reid (D-Nev.).
As envisioned, the Democratic package would generate as much as $120 billion over the next 10 months with a 50-50 combination of new taxes and spending cuts that could be swapped out for the “meat ax” cuts, as some have taken to calling the scheduled reductions.
To achieve new revenue, the proposal may include the Buffett Rule, according to a Senate aide who was not authorized to publicly discuss the ideas being floated. The highly populist idea, one Obama has trumpeted, is named after multibillionaire investor Warren Buffett, who has publicly complained that loopholes and deductions in the tax code allow him to skirt the top tax bracket and pay a lower effective tax rate than his secretary.
Revenue from the Buffett Rule could cover almost half the cost of the 10-month package; the remainder would come from spending cuts. Other ideas for generating revenue have focused on capping itemized deductions for wealthier Americans and closing corporate deductions, including those used by the oil and gas industry.
The Democratic alternative is expected to be unveiled this week.
Reid is expected to meet with House Speaker John A. Boehner (R-Ohio), but the two parties are far from achieving a compromise. Republicans have opposed any new tax revenue, especially after the year-end “fiscal cliff” deal resulted in higher tax rates, with the top rate now at 39.6%, for households earning more than $450,000 a year.
Republicans are all but certain to be against the Buffett Rule, which they blocked in the Senate last year when a similar proposal would have required millionaires to pay a minimum 30% tax.
“The tax issue is over,” Senate Minority Leader Mitch McConnell (R-Ky.) said Tuesday.
McConnell said Republicans in the Senate probably would make their counter-proposal as the two sides head toward what appears to be another showdown as the March 1 deadline approaches.
“There's an eerie similarity here, isn't there?” McConnell told reporters. “Take no action, go right up to the deadline, and have an eleventh-hour negotiation. Read my lips. I'm not interested in an eleventh-hour negotiation.”
The cuts coming March 1, called “sequestration,” were agreed to in 2011 as a last-ditch effort to strike a deal over raising the nation’s debt limit. At the time, they were considered so severe – automatically triggering $1 trillion in cuts equally across defense and domestic accounts over the decade – that they would force both sides back to the negotiating table.
But finding a more politically palatable deficit-reduction alternative has proved difficult. Republicans are increasingly willing to stomach the cuts rather than consider new taxes, as Obama wants.
The cuts amount to a reduction of about $12 billion a month across all federal spending, a contraction that economists have warned would chisel away at economic growth this year.