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November 13, 2012

Deficit talks will test GOP focus

WASHINGTON — Republican leaders say the government can raise tax “revenues” without raising tax “rates.” But they have yet to detail how they would pursue it.

The distinction might mean little to Americans who end up with larger tax bills even if their tax rates don’t change. This politically tricky trade-off is about to take center stage in negotiations over how to reduce the federal deficit and avoid going over the “fiscal cliff” in just seven weeks.

The White House says wealthy Americans must pay a higher tax rate to help produce more revenue to lower the deficit. Congressional Republicans refuse, and many want tax rates to fall instead. But they say they are open to other means of higher tax collections, which might include limits to itemized deductions.

About one-third of U.S. households itemize deductions rather than take the standard deduction. Some of these itemized deductions, such as the one for mortgage interest payments, are popular and deeply ingrained in the American culture.

Many Republican lawmakers are tip-toeing around the issue. But Sen. Saxby Chambliss, R-Ga., warns of possibly huge changes affecting millions of people.

Chambliss told the Atlanta Journal Constitution that federal revenues can be increased significantly without raising tax rates, by limiting deductions. But he noted the popularity of the most important deductions, which are granted for mortgage interest, charity gifts and health care costs.

“It can be done, but it’s going to require the elimination of almost all— if not all — tax deductions and tax credits,” Chambliss said. “That’s going to be difficult.”

Congress has raised and lowered income tax rates many times over the past few decades. Currently, a married couple pays 15 percent on taxable income between $17,400 and $70,700. Four higher tax rates apply to incomes beyond that.

The rate a couple pays is only one factor in their overall tax bill. Deductions or credits for child care, charitable giving, medical costs and other expenses can make big differences.

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