U.S. deficit panel could delay on taxes

WASHINGTON Tue Nov 15, 2011 1:14am IST

A U.S. Flag is displayed in front of the U.S. Capitol in Washington, November 2, 2010.  REUTERS/Molly Riley/Files

A U.S. Flag is displayed in front of the U.S. Capitol in Washington, November 2, 2010.

Credit: Reuters/Molly Riley/Files

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WASHINGTON (Reuters) - U.S. lawmakers might opt to postpone tough tax decisions until next year as they struggle to forge a deficit-reduction deal over the coming week, congressional aides said on Monday.

With time running short, the "super committee" of six Democrats and six Republicans could agree to some spending cuts and instruct their fellow lawmakers to raise more tax revenue by retooling the byzantine tax code next year, aides said.

That could allow the panel to reach a deal by its Nov. 23 deadline and temporarily resolve a budget battle that has dominated Washington for most of this year. But it would push the tax question well into the 2012 election season, when partisan tensions will be running even higher than usual.

The idea has been talked about for months as a possibility and is being looked at more closely as little progress is evident as the deadline approaches.

Republican Representative Jeb Hensarling on Sunday talked about a possible "two-step approach" on a Sunday talk show.

A senior Democratic aide said on Monday: "It is being discussed. That is clear."

Another option under discussion is a deal that would lead to more tax revenue now, the aide said.

Specifics of that option were not available but Democrats have been pushing to end some special interest tax breaks, such as one for the oil and gas industry and for corporate jets.

Instructing the two tax-writing committees in Congress to overhaul the tax code in a way that could limit or end some tax breaks could allow the super committee to avoid deadlock and heap even further scorn on Congress at a time when it already faces record low approval ratings.

But the panel would probably still have to tell the House of Representatives Ways and Means Committee and the Senate Finance Committee how much new revenue to raise over 10 years and how to structure those revenues.

MANY IDEAS FLOATING AROUND

Democrats also might press to link possible spending cuts to the Medicare and Medicaid healthcare programs to a successful outcome on tax reform next year.

Republicans already rejected such a proposal last week.

"What will the guidelines be (that are) given to the committee?" asked the senior Democratic aide.

Meanwhile, other ideas have been swirling around the super committee, without any clear sign of traction, including some "small deals," according to congressional aides.

Republicans are considering a structural reform to Medicare that would limit the program's growth and allow recipients to choose a private health plan instead if they wished, softening an approach they advanced earlier in the year.

If the super committee fails to lock in at least $1.2 trillion in deficit reduction -- either through spending cuts or tax increases -- over the next decade, across-the-board reductions kick in starting in 2013. They would be split evenly between domestic and military programs.

Representative Eric Cantor, the No. 2 Republican in the House, said he didn't think that would happen.

"I believe they will reach agreement by the deadline," Cantor told reporters.

The blunt instrument of across-the-board spending cuts is seen as a harsher outcome than a more targeted approach written by the super committee. The across-the-board cuts also would underscore the political gridlock in Congress at a time when financial markets are yearning to see Washington work cooperatively on fiscal issues.

With the House returning on Monday from a week-long break, Cantor and other party leaders will begin sounding out their rank-and-file about what approach might have the best chance of passing the Republican-controlled chamber, where conservatives have been on a year-long campaign to shrink the size of government.

In an attempt to encourage the super committee to strike a deal in its waning days, a group of about 150 lawmakers from the House and Senate are planning to gather on Tuesday to "encourage, nudge, cajole" the panel, in the words of one aide, to find much more than the $1.2 trillion in minimum savings the super committee is tasked to find.

(Additional reporting by Donna Smith; Writing by Andy Sullivan; Editing by Eric Beech)

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