US Democrats aim tax, spending cuts at rich to avoid 'meat ax'

Feb 08 2013, 11:28 IST
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US Democrats aim tax, spending cuts at rich to avoid 'meat ax'. (Reuters) US Democrats aim tax, spending cuts at rich to avoid 'meat ax'. (Reuters)
SummarySavings, known in Washington as the 'sequester,' would cut into most military and domestic programs.

US Democrats have proposed substituting the $85 billion "meat-ax" approach to deficit reduction with a mix of spending cuts and tax hikes, although they acknowledge it is not clear if that will be embraced by President Barack Obama.

Facing government spending cuts that could delay air travelers, pare education programs for the poor and weaken military readiness, Democrats in the US Congress this week sought to shift the deficit-reduction burden to the rich.

Without congressional action, about $85 billion in across-the-board spending cuts are set to begin on March 1. If allowed to continue, they could slow economic growth this year, according to the non-partisan Congressional Budget Office.

The savings, known in Washington as the "sequester," would cut into most military and domestic programs. Worse, they would be compressed into a short time frame of March 1-Sept. 30, when Washington's fiscal year ends.

In a taunt to Republicans who oppose any tax increases to reduce deficits, Democrats are again aiming at squeezing more revenues out of the wealthy to help bring down the debt. It is a gambit they successfully deployed weeks ago when a "fiscal cliff" deal raised around $600 billion over 10 years by letting income tax rates rise on the highest earners.

"They (Republicans) have to tell the American people whether they care more about protecting special-interest tax breaks like those for big oil companies or whether they care about defense spending and economic growth," said Democratic Representative Chris Van Hollen of Maryland. He spoke to Reuters on the sidelines of a three-day House Democratic retreat.

Most of the Democrats' savings ideas already have been floated in past legislative debates.

Van Hollen, the senior Democrat on the House Budget Committee, said that under their plan, tax deductions for the very wealthy would be limited by phasing in a 30 percent effective tax rate for those earning more than $1 million a year.

This minimum tax would be separate from the income tax hike that started on Jan. 1 for households with incomes above $450,000 a year.

These added revenues for the Treasury, Van Hollen said, would be further augmented by eliminating a long-held tax break for the profitable oil and gas industry. And on the spending side, Democrats would end government payments to farmers that are largely enjoyed by big agricultural operations.

Asked whether he thought Obama would publicly embrace these savings to head off the "sequester" possibly next week in his State of the Union address

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