Another idea that has been talked about in bipartisan discussions is using a “chained CPI,” which would recalculate the Consumer Price Index. Tax deductions, rate brackets and a variety of government payments are tied to the Consumer Price Index.
One argument Republicans have been making to Democrats is that a broader tax reform bill that lowers overall tax rates would generate far more revenue than budget experts estimate because of the dynamic effects a simpler tax code would have for the economy. The trick for Republicans, who have repeatedly vowed not to support tax increases, is whether a package can be put together that includes components such as AMT relief so they can say it isn’t a tax increase.
“The question is whether you can do it without it explicitly being a revenue raiser,” the GOP source said.
Grover Norquist, president of Americans for Tax Reform, said in an email Tuesday that a revenue-neutral AMT fix would comply with the anti-tax pledge most Republicans have signed. Norquist said chained CPI would be “very bad” if applied to taxes because it would gradually raise tax revenue.
The AMT was created to tax wealthy individuals who had used loopholes to avoid paying taxes. But it was never indexed for inflation and threatens to engulf much of the middle class in much higher tax rates.
The Congressional Budget Office last week projected that unless Congress acts, the AMT would affect nearly half of all households by 2035, compared with just 3 percent this year.
And offsetting the AMT with higher tax revenue elsewhere isn’t a new idea. President George W. Bush’s administration, back when now-Sen. Rob Portman (R-Ohio) was budget director, proposed a revenue-neutral AMT fix that would require higher revenues elsewhere as part of a plan to balance the budget.
But Democrats have generally demanded there be some net increase in revenue and have stepped up their attacks on a host of corporate tax breaks that include offshore tax havens, private jets, oil companies and the like.
Other Senators are also launching trial balloons aimed at jump-starting the debt talks. Coburn and Sen. Joseph Lieberman (I-Conn.) proposed a plan Tuesday to slice $600 billion from Medicare during the next decade by raising premiums and the retirement age.
But the plan was immediately panned by House and Senate Democratic leaders — including Durbin, Coburn’s gang of six colleague.
“Leaving people at the tender mercies of health insurance companies for two more years before they’d be eligible for Medicare, I think that’s really a problem,” Durbin said.
Lieberman said he hoped the duo, dubbed the “brothers two,” could create a “bipartisan beachhead” and alluded to the gloom many Senators feel.
“They’re really downcast about the failure of the process here as we head toward the debt ceiling vote, and perhaps we offer a little hope that at least two of us can get together across party lines,” he said.