In the Senate, majority Democrats propose offsetting the cost of the sequester by raising a dollar in new revenues for every dollar in spending cuts. It’s a 50-50 split, in which the major pillars are higher taxes for America's wealthy and less government spending on farm subsidies and national defense.
It begins with the so-called Buffett rule, named after gajillionaire Warren Buffett, who has famously noted that his secretary’s tax rate is higher than his own because of special tax treatment for people like himself who reap income from investments (through capital gains and dividends). Under the Buffett rule, households making more than $2 million a year (after charitable deductions) would pay at least 30 percent of their income in federal taxes. (The rule begins to phase in at $1 million in annual income.)
Over 10 years, the Buffett rule would raise the lion’s share of the $55 billion in new tax revenue Democrats seek. The rest would come from ending 1) a tax preference for oil produced from oil sands ($2 billion) and 2) a tax deduction for companies that outsource US jobs.
The Democrats’ plan would also cut defense spending by about $27.5 billion over 10 years. Direct payments to farmers, a frequent target of critics in both parties, would shrink by a similar amount during that same period.
Chiefly, the Senate Democrats’ proposal spreads this year’s sequester pain over the next decade – something Republicans generally are loath to do because they fear future Congresses will simply reverse the promised spending restraint. (But wait! Isn’t that exactly what the House voted to do? Yes, indeed. The difference is that the GOP plan offered more cuts in future years than it offset this year.) Moreover, Republicans balk at new tax revenues. They are also determined to save the Pentagon from further cuts, even as Democrats zero in on the defense budget as a target for cuts to come.
The Senate has not yet voted on the Democratic plan to replace the sequester, but is expected to do so by March 1 or soon after.
(Democrats over in the House, meanwhile, have put forward a plan similar to that of their Senate colleagues. But instead of making cuts to the Pentagon, they recommend ending even more tax benefits for the oil and gas industry.)