Senate Democrat suggests flexibility on Bush tax cuts

WASHINGTON Tue Nov 13, 2012 6:31pm EST

1 of 2. U.S. President Barack Obama delivers Veterans Day remarks at Arlington National Cemetery in Arlington, Virginia, November 11, 2012.

Credit: Reuters/Jonathan Ernst

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WASHINGTON (Reuters) - The chief Democratic tax-writer in the Senate on Tuesday said the top tax rates for the richest Americans must rise in any deal reached between Congress and the White House to steer clear of the fiscal cliff, but he suggested there is some flexibility in ways to strike a deal.

President Barack Obama has pledged to veto any bill that keeps the Bush-era tax cuts for American households earning more than $250,000 a year, the biggest sticking point in talks to avoid the $600 billion mix of tax hikes and spending cuts known as the fiscal cliff that looms in early 2013.

Senator Max Baucus, chairman of the Senate Finance Committee in charge of tax legislation, said Obama's position is a good starting point but that there is wiggle room for a deal.

"The president has said he would veto any legislation that doesn't extend the top two rate cuts, and I think that is a good place for him to be," Baucus said. "Having said that ... there is a lot of room for negotiation."

The top tax rate now is 35 percent for the wealthiest Americans. Without action, that will rise to 39.6 percent on January 1, the rate on this group during the 1990s.

Baucus spoke in a hallway interview on the lawmakers' first day back in session following Obama's re-election. Senate Democrats slightly boosted their majority on November 6, and Republicans kept control of the House of Representatives.

Baucus said there is space for compromise in how much more in taxes the wealthy should pay, so that the approach is, as Democrats put it, balanced between tax cuts and spending cuts.

"I think the top two rates must be part of the solution. Some variation of the top two rates," Baucus said.

"That could mean ... back up to 39.6 or something less than 39.6 percent. More than 35 percent," Baucus said.

Obama made a centerpiece of his campaign ending the lower tax rates, originally enacted in 2001 under Republican President George W. Bush, on some income earned by the wealthy. He has argued that richer Americans should pay more to help pare the federal deficit.

Republicans want to extend lower rates for all income levels and on Tuesday top Senate Republican Mitch McConnell dug in his heels, saying the party would not compromise its principles.

(Reporting by Kim Dixon; Editing by Jackie Frank)

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