Levin: Congress Must Consider Proposed 28% Cap, But with Caution

The ranking Democrat on the House Ways and Means Committee said Tuesday that the Obama administration's proposed 28% cap on tax expenditures should be considered as a source of additional revenue in upcoming fiscal fights, but warned it should be viewed with caution.

Speaking at a breakfast sponsored by the Christian Science Monitor, Rep. Sander Levin, D-Mich., was emphatic that any alternative to the automatic across-the-board federal government cuts known as sequestration should be balanced and include revenue as well as spending cuts.

"Clearly, if we are going to find additional revenues including taxes, we are going to have to look at itemized deductions, but in a careful way," Levin said. "I'm not in favor of just accepting the Administration's 28% proposal lock, stock and barrel. As someone who urged caution a year-and-a-half ago, I continue to do so."

Sequestration was initially set to take effect on Jan. 1, but was delayed by two months as part of the fiscal cliff package agreed to and enacted on New Year's Day.

Levin stressed that lawmakers on both sides of the aisle need to further discuss itemized and non-itemized deductions in sequestration negotiations. Municipal bonds are likely one of the largest parts of the tax expeditures covered by the administration's proposed 28% cap, he said.

"I have some concern about that and we need to talk about its implications," he said. "But it's not so simple because there are some analyses that say the way it works, essentially the main beneficiaries become the very wealthy. I think we need to look at that."

Levin said the problem with placing a cap on itemized deductions is that it would have "significant consequences for charitable contributions and perhaps for state and local taxes."

"I think a better way to look at this is to look at the administration's proposal, but to do it with caution," Levin said.

He is optimistic that addressing itemized deductions can be accomplished on a bipartisan basis, especially if Republicans are willing to look at additional revenues including from taxation, he said.

Levin answered a wide range of questions for one hour with reporters at the breakfast on trade, entitlement reform, the debt ceiling, and tax loopholes and other issues.

On tax reform, Levin said he is hopeful that lawmakers can tackle sequestration in the next six weeks and then move on to more serious discussions including an overhaul of the tax code and entitlement reform.

"I am not very confident, I am hopeful," he said, adding that he favors tackling tax reform in a way that moves away from rhetoric of lowering tax rates and broadening the base, as Republicans have suggested.

Chairman of the House Ways and Means Committee Rep. Dave Camp, R-Mich., recently said that in light of the fiscal cliff deal, he would have to reassess his proposed top 25% income tax rate as part of a plan to revamp the tax code. Currently, the top individual tax rate is 39.6%, as set into law by the fiscal cliff agreement.

Levin said Camp's targeted 25% income tax rate was not reality because Republicans never outlined exactly how they would reach that rate.

Levin also addressed the consequences of not raising the debt ceiling, saying it would be "cataclysmic." He suggested that the debt ceiling should be extended and set aside for a considerable amount of time.

His remarks come one day after President Obama escalated the fight with Republicans over raising the federal government's borrowing limit.

"Republicans in Congress have two choices here: They can act responsibly and pay America's bills or they can act irresponsibly and put America through another economic crisis," Obama said Monday at his first press conference of the year. "But they will not collect a ransom in exchange for not crashing the American economy."

Many Republicans oppose raising the debt ceiling and plan to use it as leverage to obtain more federal spending cuts. The federal government will reach its $16.4 trillion borrowing capacity by as early as mid-February, Treasury Secretary Timothy Geithner warned lawmakers on Monday.

For reprint and licensing requests for this article, click here.
Tax Washington
MORE FROM BOND BUYER