"Super committee" eyes taxes amid differences

Representative Fred Upton (R-MI) (L-R), Rep. Xavier Bacerra (D-CA), Rep. Jeb Hensarling (R-TX), Senator Patty Murray (D-WA), Sen. Jon Kyl (R-AZ), Sen. Max Baucus (D-MT), Sen. Rob Portman (R-OH) and Sen. John Kerry (D-MA) meet for the first time for a Joint Deficit Reduction Committee hearing on Capitol Hill in Washington, September 13, 2011.

WASHINGTON (Reuters) - The leaders of a congressional "super committee" squared off on Thursday over the hot-button issue of tax increases and how new revenues might fit into the panel's deficit reduction proposals.

Democratic co-chair Senator Patty Murray, at the start of the committee's hearing on the roughly $1 trillion in special interest breaks and loopholes that permeate the U.S. tax code, made clear she expects the panel to include some tax increases along with spending cuts in its final product.

"We have to address both spending and taxes," Murray said.

Republican co-chairman Representative Jeb Hensarling made clear he was more interested in overhauling the tax code to reduce income tax rates, which he said would help generate economic growth.

"My hope on this is we may be able to achieve rigorous agreement that fundamental tax reform, even if limited to American businesses, can result in both revenues from economic growth for the federal government and jobs for the American people," Hensarling said.

The 12-member bipartisan committee was created by an August deal that cleared the way for President Barack Obama to increase U.S. borrowing authority. At Thursday's second public hearing, members concentrated on taxes, going over issues that have been debated by lawmakers for years.

Republicans are pushing the panel to undertake a tax code overhaul.

"The most pro-growth thing we can do is to fundamentally reform our tax code," said Republican Senator Pat Toomey.

The November 23 deadline for the panel to present recommendations to the Senate and U.S. House of Representatives gives the panel of six Republicans and six Democrats little time to rewrite the U.S. tax code.

OVERHAUL AS AN ELECTION ISSUE

The panel could lay the groundwork for a broad tax overhaul by instructing the tax-writing House Ways and Means Committee and Senate Finance Committee to develop tax reform legislation for Congress to consider next year.

That would put the overhaul issue right in the middle of next year's presidential election campaign and it could help Republicans blunt Obama's push to raise taxes on the wealthy. Polling data has shown that most Americans favor asking the rich to pay more taxes.

Ways and Means Committee Chairman David Camp, a Republican, has expressed some interest in the super committee setting a tax overhaul in motion. But Finance Committee Chairman Max Baucus favors leaving tax reform to the committees of jurisdiction.

The super committee has been asked to come up with at least $1.2 trillion in savings over 10 years. If it does not, a similar amount of across-the-board cuts automatically will go into effect in January 2013. Those cuts would be divided evenly between military and domestic programs.

Democrats have made clear they will not accept the entire $1.2 trillion savings to come from spending alone and refuse to consider cuts to popular federal health and retirement programs unless some new tax revenues are part of the package.

Adding to the pressure on the panel is a threat by financial credit rating agencies to lower the government's bond rating if lawmakers do not develop a credible long-term plan to reduce deficits.

Most budget analysts say that cannot be done without scaling back spending on Medicare and Medicaid healthcare programs for the elderly and poor as well as the Social Security retirement program.

Last month Standard and Poor's cut the government's coveted AAA bond rating and voiced concern Washington was too divided to tackle its deficit problem.

(Editing by Bill Trott)