Republican members of the U.S. Congress are trying to devise options that would raise revenue while preserving the current top tax rate for high-income earners of 35 percent.
One possible option could include limiting the amount of deductions taxpayers can collect: a proposal that both Mitt Romney and President Obama have floated in different variations.
The tax-raising options would be used only as part of a broad agreement on taxes and entitlement programs if President Barack Obama wins reelection. They are included in a toolbox to be opened after the Nov. 6 elections if Republicans make a political calculation to support a deal that raises taxes.
Republican aides told Bloomberg that they are considering revenue options that would be the most palatable to Republicans, who oppose tax increases. The party places a priority on the top rate because that is what defines marginal economic incentives for taxpayers and businesses that pay taxes under the individual code.
Such a proposal would mean that Republicans would be using some of the potential revenue – and perhaps the most politically achievable revenue – from broadening the tax base to pay for preserving current rates. Under their preferred policy, they would broaden the tax base to pay for lower rates.
Both parties say they think the other side can be pressured into compromising. Republicans have been pointing to Obama’s 2010 decision to extend the tax cuts for all income levels and say he will relent on his veto threat. Democrats say they have leverage on raising taxes from high earners.
Coming up with options, particularly in a politically palatable way, remains tough, J.D. Foster, a fellow at the Heritage Foundation told Bloomberg. “Where is that unknown revenue source that’s not higher rates that would satisfy the president that says he only wants higher rates?” he said.