Obama Pushes Major Tax Reforms in Deficit-Cutting Plan

WASHINGTON — In deficit-reduction recommendations to Congress on Monday, President Obama called for comprehensive tax reform, an end to the Bush-era tax cuts, and a 28% cap on tax-exempt interest and deductions for the wealthy, while Republicans rebuffed any tax increases.

The 80-page plan the president sent to the Joint Commission on Deficit Reduction also calls for increased funding for the Internal Revenue Service to help it crack down on tax cheats.

The plan estimates the 28% cap on tax-exempt interest and other tax preferences and deductions would reduce the deficit by $410 billion over 10 years. Obama emphasized that he would veto any deficit-reduction legislation that reins in Medicare and Medicaid benefits without including some revenue increases.

New revenue “has to be part of the formula” for any spending-cut plans that come out of Congress, he said. “We can’t just cut our way out of this hole,” Obama warned, adding it is “only right to ask everyone to pay their fair share.”

Included in his tax recommendations, the president proposed a new levy that would guarantee people making more than $1 million cannot pay taxes at a lower rate no matter where that income comes from.

The proposal stems from an income tax disparity highlighted by billionaire investor Warren E. Buffett, who has said he pays a lower marginal tax rate than his secretary because most of his income is earned on capital gains rather than wages.

Speaking to the press, Treasury Secretary Timothy Geithner said the Buffett proposal is not comparable to the alternative-minimum tax and he did not offer a specific tax rate that the Buffett proposal would cover.

The “fortunate few” who earn more than $1 million annually “should as a share of their income pay a minimum level that is no lower than that paid by an average, middle-class family,” Geithner said. The Buffett proposal “depends on what happens to the shape of tax reform” and “is a basic principle” for Congress to consider going forward, he added.

Among other efforts to boost revenue, the president’s recommendations call for $350 million in new tax enforcement and compliance initiatives over 10 years. The administration said it hopes the IRS can rake in $2 billion in additional revenue in 2014 if the service gets the additional funds in 2012.

Republicans quickly rejected the president’s plan for tax hikes. House Speaker John Boehner, R-Ohio., accused Obama of “pitting one group of Americans against another” and said the president’s proposals will not help the deficit commission achieve its goal of finding at least $1.2 trillion in savings over 10 years.

The president’s “insistence” on tax increases was one reason Boehner said he and Obama “were not able to reach an agreement previously,” the speaker said in a statement.

Sen. Orrin Hatch, R-Utah, the ranking member of the Senate Finance Committee, called the president’s tax increases “crass class warfare.”

“Tax increases thinly veiled as tax reform isn’t reform,” Hatch said in a statement.

Members of the 12-person, so-called super committee — both Democrats and Republicans — have already said they will consider tax-reform proposals as part of their deficit-reduction recommendations due to be sent to Congress by Nov. 23.

All of the House and Senate committees have the option of submitting deficit-reduction recommendations to the committee by Oct. 14. But they are not obligated to make recommendations, and it remains unclear if they will offer any advice to the super committee.

If deficit-reduction recommendations are not voted on by Jan. 23, across-the-board spending cuts take effect.

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