Tax issues stall deficit committee as deadline nears

Deadlock. Impasse. Cooling-off period.

Call it what you will, but the congressional super committee on deficit reduction has again stalled out after a flurry of proposals this week from Republican and Democratic members as the Thanksgiving deadline approaches.

Talks continue behind closed doors as smaller groups of lawmakers from the largely secretive 12-member panel try to strike a deal to reduce deficits by $1.5 trillion over the next decade.

But the stalemate revolves around the issues that have stunted such efforts all year: Republicans are unwilling to agree to the scale of new revenues Democrats insist are needed to get their agreement to cut Medicare and other domestic spending and entitlement programs.

Talks hit a “breakthrough,” as Sen. Dick Durbin of Illinois, the No. 2 Democrat in the Senate, called it this week when the GOP strayed from its rigid anti-tax stance and offered new tax revenue for the first time.

But Democrats rejected the GOP proposal as paltry because the new taxes were paired with a permanent lowering of income tax rates on wealthy Americans and other households.

The Democrats’ dismissal of the GOP offer led Republicans to claim Democrats walked away from the negotiating table. Democrats countered that was not the case as both sides assess next steps.

With the Nov. 23 deadline closing in, the two sides are not as far apart as the partisan sniping may seem.

Both have largely agreed to as much as $1 trillion in domestic spending reductions over the decade, even though differences remain over how those cuts would slice through defense and other accounts.

The two sides also agree, in theory, to a revamp of the corporate tax code in a way that would lower corporate tax rates and potentially generate new revenue.

But the broader tax issue remains the divide.

Democrats want at least $1 trillion in new taxes, a level of revenue Republicans call a nonstarter. In contrast, the GOP proposal would have put $250 billion in new tax revenue on the table by limiting loopholes mainly on upper-income earners.

Republicans are under pressure not to break the anti-tax pledge most lawmakers have made with conservative activist Grover Norquist’s Americans for Tax Reform.

Though several Republicans have indicated they will no longer stand by that pledge if it impedes a historic deficit deal, others are reluctant to drift for fear of primary electoral challenges from the conservative right.

Democrats are also loathe to endure criticism from seniors and other groups for cutting Medicare or other programs, but have said they are willing to engage in such cuts if new taxes are also in the mix.

Both sides are waiting for the other to act, as closed talks continue.

Failure to strike a deal could spin unrest in the financial markets, and would trigger mandatory cuts across defense and domestic accounts both sides want to avoid.

But because those required cuts would not happen until 2013, some lawmakers are working to prevent them from taking place.

Lmascaro@tribune.com