President Obama wants to tie spending cuts to tax revenue hikes in the debt ceiling talks, but that could mean trouble for the middle class taxpayers he has pledged to protect, money.cnn.com reported on Thursday.
"They'll have to go down to where the real money is, which is the middle class," said Brian Gardner, Washington policy analyst with Keefe, Bruyette & Woods, an investment bank. "Politically, that would be very tough."
The White House and Congress just finished a bruising fiscal cliff battle that raises taxes on the rich by $618bn over a decade. Next up is the debt ceiling debate and dealing with the sequester — automatic spending cuts set to kick in by early March.
Republicans want any debt limit increases to be coupled with spending cuts. In return, Democrats are demanding more revenue, mentioning closing loopholes and corporate subsidies like the $38bn given to the oil industry over 10 years.
But to bring in significant tax revenues, lawmakers would have to tap into some politically sensitive tax deductions, said Robert Bixby, executive director of the Concord Coalition.
"The problem with exempting the middle class from any pain is that it's hard to make the numbers work," Bixby said. "Corporate tax loopholes are not as large as the ones for individuals."
Tax exclusions and deductions total roughly $1.1tn a year, but less than 10 per cent benefit corporations, according to the Tax Policy Centre. That means most cuts to those benefits would hit individuals.
So who would pay? Further restricting itemised deductions and exclusions for the rich could be one way to bring in several hundred billion dollars over a decade, but there may not be enough there to raise enough revenue to balance out the spending cuts.
Eliminating several other major tax breaks could also bring in billions a year in savings for the government, but would amount to tax increases on the middle class people that benefit from them.
