Taxes Could Postponse Debt 'Super Committee' Decision

U.S. lawmakers might opt to delay tough tax decisions until next year.

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WASHINGTON (Reuters) - U.S. lawmakers might opt to postpone tough tax decisions until next year as they struggle to forge a deficit-reduction deal over the coming week, congressional aides said on Monday.

With time running short, the "super committee" of six Democrats and six Republicans could agree to some spending cuts and instruct their fellow lawmakers to raise more tax revenue by retooling the byzantine tax code next year, aides said.

That could allow the panel to reach a deal by its November 23 deadline and temporarily resolve a budget battle that has dominated Washington for most of this year. But it would push the tax question well into the 2012 election season, when partisan tensions will be running even higher than usual.

The idea has been talked about for months as a possibility and is being looked at more closely as little progress is evident as the deadline approaches.

[See a collection of political cartoons on the budget and deficit.]

Representative Eric Cantor, the No. 2 Republican in the House, expressed optimism that a deal could be reached but declined to comment on the possible details.

"I believe they will reach agreement by the deadline," Cantor told reporters.

A senior House Republican aide told reporters that Republicans were waiting for Democrats to come forth with new ideas and Democratic super committee member Chris Van Hollen said, "conversations continue.'

Republican Representative Jeb Hensarling on Sunday talked about a possible "two-step approach" on a television news show.

A senior Democratic aide said on Monday: "It is being discussed. That is clear."

Another option under discussion is a deal that would lead to more tax revenue now, the aide said.

Specifics of that option were not available but Democrats have been pushing to end some special interest tax breaks, such as one for the oil and gas industry and for corporate jets.

Instructing the two tax-writing committees in Congress to overhaul the tax code in a way that could limit or end some tax breaks could allow the super committee to avoid deadlock and heap even further scorn on Congress at a time when it already faces record low approval ratings.

But the panel would probably still have to tell the House of Representatives Ways and Means Committee and the Senate Finance Committee how much new revenue to raise over 10 years and how to structure those revenues.

[Read 10 Things You Didn’t Know About the Bush Tax Cuts. ]

MANY IDEAS FLOATING AROUND

Democrats also might press to link possible spending cuts in the Medicare and Medicaid healthcare programs to a successful outcome on tax reform next year.

Republicans already rejected such a proposal last week.

"What will the guidelines be (that are) given to the committee?" asked the senior Democratic aide.

Meanwhile, other ideas have been swirling around the super committee, without any clear sign of traction, including some "small deals," according to congressional aides.

Republicans are considering a structural reform to Medicare that would limit the program's growth and allow recipients to choose a private health plan instead if they wished, softening an approach they advanced earlier in the year.

If the super committee fails to lock in at least $1.2 trillion in deficit reduction -- either through spending cuts or tax increases -- over the next decade, across-the-board reductions kick in starting in 2013. They would be split evenly between domestic and military programs.

 [Debate Club: Is a flat tax a good idea?]

The blunt instrument of across-the-board spending cuts is seen as a harsher outcome than a more targeted approach written by the super committee.

Defense Secretary Leon Panetta warned that they would disrupt naval shipbuilding, and force the Pentagon to shrink its ground forces to pre-World War II levels.

"The impact of these cuts would be devastating," Panetta wrote to lawmakers.

The across-the-board cuts also would underscore the political gridlock in Congress at a time when financial markets are yearning to see Washington work cooperatively on fiscal issues.