Senate Democratic Conference Vice Chairman Charles Schumer (N.Y.) called for negotiators on a larger budget deal to abandon their plans to close tax loopholes to lower rates overall — a move that has been embraced on a bipartisan basis for decades.
Schumer held a press conference on tax reform challenging the Senate’s “gang of six,” now expanded to eight, the day before the group was set to meet again to discuss budgetary issues and after a week in which the group received significant media attention. Key to his argument was that the group should abandon the notion of eliminating tax loopholes and deductions as a way to lower rates across the board and broaden the tax base.
His charge that they “revisit their approach to tax reform” was a splash of cold water on a group that has worked for years to find a solution to the politically difficult task of reducing the deficit.
“Ronald Reagan and the 1986 Democratic Congress invented it. Simpson-Bowles validated it. The gang of six endorsed it. But in the upcoming talks on the fiscal cliff, we ought to scrap it,” Schumer said of eliminating tax loopholes to lower tax rates and broaden the tax base.
“Our needs today are different compared to 1986, and we cannot take the same approach as we did then. We must reduce the deficit, which is strangling our economic growth. And we must seek to control the rise in income inequality, which is hollowing out the middle class. The 1986 model would be ineffective — if not counterproductive — to solving these two challenges.”
The New York Democrat’s tax reform plan was based on a three-prong approach: reduce the number of tax expenditures in the existing tax code, return the top rate for the country’s highest earners to the Clinton-era levels and then raise the capital gains tax rate in order to boost revenues from investment income.
He indicated that Republicans should “come to the table around a grand bargain” because if they consider revenues, there would be the “potential for serious entitlement reform.” In the multiple failed efforts to negotiate a large budget deal, the promise of changes to the third rail of American politics has not been enough of a sweetener for Republicans, whether it was between the president and Speaker John Boehner (R-Ohio), the Members of the Select Joint Committee on Deficit Reduction or the Members of the gang of six.
Schumer said his plan is his alone and that it does not have the explicit support of either Senate Majority Leader Harry Reid (D-Nev.) or Finance Chairman Max Baucus (D-Mont.). He also declined to outline specifics for his plan, chiefly where he would like the capital gains tax rate to be or which tax expenditures he would eliminate.