* Democrats reject latest offer by Republicans
* Tax deduction limits were discussed in super committee
* Democrats say Republican offers fall far short
By Richard Cowan and Donna Smith
WASHINGTON, Nov 8 (Reuters) - Fast-paced deficit-reduction negotiations hit a bump on Tuesday when Democrats rejected a Republican plan to raise additional tax revenues but at the same time deliver new tax cuts to the wealthy.
The result is that with just two weeks remaining before a Nov. 23 deadline for reaching a deal on at least $1.2 trillion in deficit reductions, Democrats and Republicans are left without a plan for the time being.
In a meeting between some members of the congressional “super committee” charged with finding a budget deal, Democrats delivered the verdict to Republican counterparts. “This is an offer that we could not take,” a senior Democrat said.
The Democrat, who asked not to be identified, gave no indication that his party would be making a counter-offer to Republicans.
Republicans had argued that their plan was a step in the direction of Democrats, who have been insisting on new taxes and revenues to help shrink budget deficits.
Earlier in the day, Senate Democratic and Republican leaders sounded upbeat about overall prospects for a deal following two months of intensive meetings by the 12-member bipartisan panel.
Some congressional aides and lawmakers were quick to dismiss the Republican initiative, saying it fell short of what was needed to achieve a balanced deal of spending cuts and tax increases.
The result is no outward signs of progress.
Aides with knowledge of the super committee talks said some of the six Republican committee members had 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 $1.2 trillion deficit reduction plan proposed by some of the Republican members.
The added revenues from limiting deductions would have amounted to about $250 billion over 10 years, Democratic aides said.
But at the same time, the Republican plan proposed 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, year-long fight over U.S. budget deficits that have been topping $1 trillion annually, Republicans had resisted any tax increases to help solve the problem. Instead, they 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.
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.
President Barack Obama wants Congress to raise taxes on the wealthiest as part of any “balanced” deficit-reduction deal.
Some congressional aides said Republicans claimed in the super committee talks that limiting tax deductions would generate enough revenues to make the Bush-era tax cuts permanent, with money left over to lower tax rates even further and to help pay down deficits.
The Bush tax cuts reduced rates across the board and are due to expire at the end of next year. The top tax rate would then move to 39.5 percent unless Congress intervened.
A Democratic aide said it would be impossible to lower the top rate to 28 percent without eliminating nearly all tax deductions.