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Updated Thursday, November 10, 2011 1:11 am TWN, By Richard Cowan and Donna Smith, Reuters

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US deficit talks focus on revenue streams, but tide is yet to turn

WASHINGTON--Deficit-reduction talks intensified in the U.S. Congress on Tuesday as lawmakers focused on raising additional tax revenues, but there was no clear sign yet that the negotiations will succeed.

With a 12-member congressional “super committee” racing to meet a fast-approaching Nov. 23 deadline to agree on at least US$1.2 trillion in deficit cuts, Republicans put forward a proposal they said was a step toward Democrats' demands for new revenues.

While Senate Democratic and Republican leaders sounded upbeat, some congressional aides and lawmakers were quick to dismiss the initiative, saying it fell short of what was needed to achieve a balanced deal of spending cuts and tax increases.

Some aides characterized negotiations as being “in flux,” with no clear evidence of a deal to meet the looming deadline.

Aides with knowledge of the super committee talks said some of the six Republican committee members have been discussing the possibility of limiting tax deductions that are largely enjoyed by the wealthy and many middle-class taxpayers.

The only example those aides provided to Reuters was an idea to limit the mortgage tax deduction for second homes.

The aides, who spoke on condition of anonymity because of the sensitivity of the negotiations, said the mortgage tax idea and paring other tax breaks were part of a US$1.2 trillion deficit reduction plan proposed by some of the Republican members.

The added revenues from limiting deductions would amount to about US$250 billion over 10 years, Democratic aides said.

But at the same time, the Republican plan proposes a big tax cut for the wealthiest by lowering the top tax rate to 28 percent, from the current 35 percent.

Senator John Kerry, a Democratic member of the super committee, told reporters: “I'll be very clear that whatever they've (Republicans) put there doesn't get the job done. And we've got some distance to travel.”

Kerry said that while he would not characterize the Republicans' latest ideas as substantial. “There is a change” in position, he said, without elaborating.

In a bitter, yearlong fight over U.S. budget deficits that have been topping US$1 trillion annually, Republicans have resisted any tax increases to help solve the problem. Instead, they have urged government spending cuts, comprehensive tax reform down the road and less regulation of industry to help grow a sluggish economy.

With markets already on edge about Europe's debt crisis and the sluggish U.S. economy, failure by the super committee would be just one more source of anxiety for investors. But at the same time, some on Wall Street are concerned that a new round of spending cuts could slow economic growth in the near term.

Optimism Versus Skepticism

Senate Majority Leader Harry Reid, a Democrat, and Republican leader Mitch McConnell both stressed on Tuesday that the committee was still hard at work to try to reach a deal.

McConnell said the six Republican committee members did “not believe failure is an option.”

White House budget director Jack Lew told the Reuters Washington Summit that there were signs for hope.

“It certainly seems ... that there's a desire to get things done,” Lew said, adding that a deal would boost market confidence in Washington's ability to address its debt burden.

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