(Reuters) – A senior Republican senator voiced confidence on Sunday that U.S. lawmakers would forge a deal on the year-end “fiscal cliff,” while a top aide to President Barack Obama signaled a willingness to compromise over raising tax rates on the rich.
Republican Senator Bob Corker said increasing tax revenues from wealthier Americans would have to be part of the plan, but he stressed closing loopholes rather than raising top tax rates as many Democrats favor, provided spending is also tackled.
“I am optimistic,” Corker told “Fox News Sunday.” “I think there is the basis for the deal. … There is a way of getting there on the revenue side. The real question is: can we come to terms on the entitlement side?”
Obama has invited congressional leaders to the White House on Friday to discuss the issue, with only 50 days left until the end of the year. Unless Congress acts first, $600 billion in tax hikes and automatic federal spending cuts would take effect at the end of December, with a potentially devastating impact on the economy.
The Obama administration and congressional leaders are attempting to negotiate a deal to avoid the fiscal cliff, and instead work toward a deficit-reduction package in the next session of Congress that begins in January.
‘SKIN THIS CAT’
Top Obama aide David Axelrod, asked if it was possible to raise enough revenue to curb the deficit without increasing the top tax rate, praised the “encouraging” remarks by Speaker of the House of Representatives John Boehner, the top Republican in Congress, on the need to tackle the problem.
“Obviously, there is money to be gained by closing some of these loopholes and applying them to deficit reduction,” Axelrod told CBS’s “Face the Nation.” “So I think there are a lot of ways to skin this cat, so long as everybody comes with a positive, constructive attitude toward the task.”
Boehner last week repeated his party’s commitment to not raise anyone’s tax rates, but said that he would be open to a compromise that includes changes in the tax code that bring in more revenue, something fiscal conservatives in his party have argued strongly against in the past as tantamount to a tax hike.
Tax cuts first put in place under Republican former President George W. Bush are due to expire at the end of the year for all Americans unless Congress acts. That would lift the top rate of income tax from the current 35 percent for households earning more than $250,000 a year to 39.6 percent.
Obama won re-election on Tuesday after a campaign in which he called for wealthier Americans to pay a bit more in taxes. But a range of deductions, including on mortgage interest payments and charitable giving, can significantly lower the effective tax rate that most affluent U.S. households pay.
Another influential Democrat, Senator Charles Schumer, voiced skepticism that it would be possible to raise enough revenue to lower the deficit sufficiently without lifting the tax rate on the rich, but said he is open to hearing other ideas.
“The only way mathematically that I’ve seen to do it, is go to that 39.6 percent rate. If someone can show another plan that doesn’t do that … we could look at it. But no one has shown one because I think it is mathematically impossible,” Schumer said on NBC’s “Meet the Press.”
Limiting some deductions while closing loopholes is the middle ground proposed in 2010 by a commission created by the president and led by Republican Alan Simpson and Democrat Erskine Bowles. Republican Senator Lindsey Graham urged Obama to sign on to its recommendations while pledging to do the same.
“Say ‘yes’ to Simpson-Bowles, Mr. President. I’m willing to say ‘yes’ to Simpson-Bowles. We need more revenue in Washington. We need more private sector jobs. We don’t need to raise tax rates,” he said on CBS’s “Face the Nation.”
Graham also warned that no Republican will vote for higher tax rates, and that reform of entitlement programs – such as the Social Security retirement program, the Medicare health insurance program for the elderly and disabled, and the Medicaid health insurance program for the poor – must also be tackled.
“We will generate revenue from eliminating deductions and loopholes. But we will insist our Democratic friends reform entitlements. … That is where the big money is at.”
Failure to convincingly tackle the fiscal cliff could unsettled financial markets and risk another downgrade of the U.S. credit rating, while imposing a heavy burden on a fragile recovery that could even tip the economy back into recession.
Democrat Kent Conrad, chairman of the Senate Budget Committee, voiced optimism that the country would avoid the fiscal cliff, and said Congress must agree on a measure that wins some time to work out a more detailed plan to overhaul the tax code and entitlement programs.
“You can’t settle every detail in these next few weeks. What you can do is agree on a framework agreement that sets out for the (congressional) committees of jurisdiction how much they need to save, how much money needs to be raised,” Conrad said on “Fox News Sunday.”
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