Calling it the best shot at avoiding going over the fiscal cliff come Jan. 1 st, Sen. Chuck Schumer, D-N.Y., today suggested tossing aside a tax reform compromise currently being negotiated on Capitol Hill in favor of less sweeping reforms and shifting more tax burden to the wealthy ahead of the so-called " taxmageddon" at the end of the year.
In a speech at the National Press Club in Washington, D.C., Schumer shot down the plan that is currently being negotiated by small groups of lawmakers behind closed doors. That plan embraces the tax reform model of lowering tax rates for all and closing loopholes. Tax rates would be lowered, but with fewer tax loopholes or deductions the amount of tax people pay probably would not go down under this type of scenario. Everyone from the president's fiscal commission - more commonly known as the Bowle's Simpson commission - to GOP presidential candidate Mitt Romney have championed some version of this type of "lower the rates, broaden the base" reform. But Schumer said today the version being negotiated on Capitol Hill needs to be flat-out scrapped.
"The old style of tax reform is obsolete in a 2012 world," Schumer, the third ranking Democrat in the Senate said today. He pointed to that plan's lineage in the Reagan administration and Democratic Congress of 1986 and said, "It doesn't fit the times because there are two new conditions that didn't exist in 1986 but are staring us in the face today: first, a much larger, much more dangerous deficit; and second, a dramatic increase in income inequality."
Schumer argued that a starting point of trying to lower top income tax rates is what has "messed up" two years of deficit reduction talks with little to show by way of progress or a plan. He called the idea of a tax code overhaul as "little more than happy talk."
He called on a plan centered around three principles- curtailing tax expenditures focused on top income earners, returning to a Clinton-era top rate, and reducing but not eliminating the tax preference for investment income.
Schumer advocated for raising rates for the wealthy, for the preservation of tax breaks for the middle class and urged Democrats to get behind a deal on entitlement reform.
"Democrats will never sign on to a shredding of the safety net because it isn't necessary to change the fundamental way Medicare works," Schumer said, "But we can find ways to reduce Medicare costs by hundreds of billions of dollars. That is tough medicine but still preserves the safety net. So that's how a grand bargain can be had: Republicans get entitlement reform, Democrats get revenue from the higher-income people."
Congress is under the gun for the post-election lame duck session of Congress, facing a year-end intersection of the expiration of the Bush-era tax cuts, the $1.2 trillion in spending cuts Congress imposed on itself when it failed to come up with a deficit reduction plan, and expiring payroll tax breaks. If Congress and the president do not act, American taxpayers could be faced with $310 billion in tax increases next year.
For many Republicans Schumer's proposal today is a non starter.
Senate Minority Leader Mitch McConnell, R-Ky., called Schumer's proposal "Thelma and Louise economics."
"Senior Democrats are now openly acknowledging their plan to hold the economy hostage to massive, job-killing tax hikes, and espousing the fiscally irresponsible view that says the country should be driven off the fiscal cliff rather than Congress working toward bipartisan solutions to reform and strengthen entitlements without killing jobs," said McConnell in a paper statement.
When asked, Schumer himself seemed unsure of the Democratic support for his plan in Congress even though he's had conversation with the Gang of Six, the White House and Senate Majority Leader Harry Reid.
"So I've talked to a whole bunch of people about this, but I haven't asked them for a green light to go forward or a sign-off," he said.