'Super-Committee' Democrats push tax hikes first in deficit talks

WASHINGTON (Reuters) - Democrats want tax hikes to be the first item negotiated in "super committee" deficit-reduction talks, trying to force Republicans to confront an issue at the heart of this year's budget fights, sources told Reuters.

The tough stance by Democratic members of the powerful 12-member congressional panel reflects the party's wariness that Republicans might try to sideline the issue of revenue increases in the negotiations.

"They've raised the idea of doing taxes first," a Republican aide involved in the discussions said on Friday on condition of anonymity.

The panel has the task of finding ways of cutting the U.S. deficit by at least $1.2 trillion over 10 years. If it fails to agree on a plan by November 23, automatic spending cuts will be triggered, beginning in 2013.

If Democrats hold firm to their demand for taxes to be discussed first, that could make it hard for the committee to make the tight November deadline. Congress is due to vote on the panel's recommendations by December 23.

Another congressional aide, who also did not want to be identified, confirmed that among Democrats, "there is an effort to try to discuss revenues" now.

During the super committee's initial closed-door meetings, "Republicans wanted to just talk about spending cuts and Democrats said, 'No,'" the aide said.

Republicans strongly oppose tax hikes, arguing they will hurt an anemic economic recovery. But they have not ruled out closing some tax loopholes as part of tax reform. Democrats, including President Barack Obama, insist revenue increases must be part of any deficit reduction deal.

Democrats' calls for increasing taxes on the rich may have been bolstered by a new Congressional Research Service analysis. The September 23 report obtained by Reuters concluded that letting decade-old tax cuts for the wealthy expire at the end of next year as scheduled "could help reduce budget deficits in the short term without stifling the economic recovery."

Discussing taxes first would also be a switch from the negotiating tactics employed in earlier talks.

In the summer debt talks between the White House and congressional leaders, the strategy was to try first to agree on what were perceived to be less controversial issues, such as domestic spending cuts. Those talks ultimately broke down amid disagreements over taxes.

NO AGREEMENT YET ON WHERE TO START

A third congressional aide with knowledge of the super committee's discussions told Reuters the six Democratic panel members were "not completely unified on their approach."

The aide said that while some of the Democrats were willing to work on less controversial items now, others thought tax increases should take priority.

If Democrats insist on tackling tax increases first, that is "problematic" given the November 23 deadline, the aide said.

The Republican aide involved in the discussions said the deficit talks were still at an early stage. "They're going through the minutiae of everything that is possible (for government savings). It's an inventory phase."

There is "no agreement on what will be negotiated first," the aide added.

Budget and tax specialists in the private sector are predicting arduous negotiations that could end with a partial deal at best in which the committee agrees on some savings, with the balance achieved by the automatic spending cuts.

Failure by the committee to agree on a comprehensive deficit reduction deal could lead to a further downgrade of the stellar U.S. government credit rating, a move that in turn could damage a global economy struggling to right itself after a deep recession.

(Editing by Ross Colvin and Peter Cooney)

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