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Senator prods Gang of 8 to make middle class, deficit-cutting top priorities

As bipartisan talks to avoid a 'fiscal cliff' renew this week, a top Senate Democratic leader, Charles Schumer, warns negotiators that any plan that aims to cut taxes on the rich and also cut deficits is 'a trap,' and won't add up.

By Staff writer / October 9, 2012

Sen. Charles Schumer (c.), charged with political messaging for the Senate Democratic leadership, took a swipe Tuesday at elements of a bipartisan deal involving the deputy majority leader, Sen. Richard Durbin (D) of Illinois (r.). Others in the leadership team include Senate majority leader Harry Reid (l.) and Sen. Patty Murray of Washington, seen here in a Sept. 20 press briefing.

J. Scott Applewhite/AP/File

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Washington

If you want to fix America’s tax code, one of the Senate’s leading Democrats argued forcefully on Tuesday, Congress needs to face one stark reality: “You can’t have it all.”

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That includes the so-called "Gang of Eight" senators, four Democrats and four Republicans, who are meeting down the river at Mount Vernon to come up with a tax-reform plan that could pass muster in a lame-duck session of Congress, averting a plunge off the "fiscal cliff" at the start of 2013.

"Leaders on both sides are actively encouraging their talks. I certainly am," Sen. Charles Schumer (D) of New York told reporters. "But I hope they can revisit their approach to tax reform."

Commenting on three widely repeated goals of tax reform – cutting top income-tax rates, reducing the federal deficit, and protecting the middle class from tax hikes set to take hold in 2013 – Senator Schumer said that all three cannot be achieved at once. 

“Anyone pushing a plan purporting to accomplish all three isn’t telling the truth,” Schumer said. “The sooner we are honest with ourselves about this, the easier it will be to negotiate a compromise on taxes.”

That flies in the face of cozy, conventional talking points in Washington, where members of both parties publicly ache for a tax accord that “broadens the base and lowers the rates.” 

But that Washington tax-reform shorthand – and the memory some lawmakers have of the 1986 tax reforms – ignores both a fundamental change in the state of the nation's finances and the growing income inequality, Schumer said.  

When President Ronald Reagan and House Speaker "Tip" O’Neill (D) of Massachusetts achieved tax reform, which many in Washington have taken as a blueprint for current tax negotiations, the outcome was to cut top rates and shield the middle class but ignore the deficit, said Schumer, who not only voted for the measure but whipped his then-House colleagues to favor it as well.

Today, Schumer said, reforms can, at most, achieve two of the three stated goals, especially when taking into account which income groups actually benefit from preferences in the tax code.

With US debt more than doubled as a percentage of gross domestic product (GDP) compared with the mid-1980s, it is impossible to leave deficit reduction out of the picture, he said.  

Likewise, he continued, statistics showing yawning growth in income inequality over the past several decades signal a need to protect middle-class Americans.

And that leaves reducing the highest tax rates out in the cold.

So how would Schumer obtain his starting point of $1.5 trillion in higher government revenues over the next decade?

First, some tax expenditures that don’t benefit middle-class Americans will be cut. Next, Schumer said the Bush tax cuts for annual incomes over $250,000 for families (currently taxed at 35 percent) should be “somewhere” near their levels during President Bill Clinton’s day (when they were 39.6 percent). Last, Schumer said the disparity between tax rates for earned income and investment income (currently taxed at 15 percent) should be narrowed.

Republicans, including presidential nominee Mitt Romney, have long sought a “revenue neutral” tax reform plan that lowers rates and eliminates deductions but that does not increase the amount of money taken in by the federal government. So why would they sign on for Schumer’s plan?

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