(Bloomberg) Any congressional effort to overhaul the U.S. Tax Code should make deficit reduction a priority, instead of cutting high-income Americans’ tax rates, Democratic Senator Chuck Schumer said.

“It would be a huge mistake to take the dollars we gain from closing loopholes and put them into reducing rates for the highest-income brackets, rather than into reducing the deficit,” Schumer, the third-ranking Senate Democrat, said today in a speech at the National Press Club in Washington. “The old style of tax reform is obsolete in a 2012 world.”

Schumer’s stance puts him at odds with bipartisan proposals from President Barack Obama’s Simpson-Bowles deficit-cutting commission and a group of Republican and Democratic senators known as the Gang of Six, which has expanded to eight members. Schumer, a member of the Senate Finance Committee, isn’t part of either group.

“Reagan-style reform worked over 25 years ago,” Schumer said. “As a result, it has a great deal of appeal to some of the most serious fiscal thinkers in Washington.”

Schumer put the group of eight senators in that camp. Included in the group are Dick Durbin of Illinois, the Senate’s second-ranking Democrat, and Kent Conrad of North Dakota, a Democratic member of the Finance Committee.


Bush tax cuts

The tax issue, particularly whether to extend the Bush-era tax cuts for married couples earning more than $250,000 a year and individuals earning more than $200,000 a year, is contributing to gridlock between congressional Democrats and Republicans as the so-called fiscal cliff approaches. In January, $1.2 trillion in automatic spending cuts will begin and the Bush-era tax cuts will expire unless Congress can agree on a plan to avert the changes.

Obama and Democrats propose letting the tax cuts expire for top earners. Republicans have called for curtailing tax breaks and lowering marginal tax rates. The House-passed budget calls for dropping the top rate to 25 percent, while Republican presidential nominee Mitt Romney wants a 28 percent top rate.

“The top rate for the highest earners should probably return to Clinton-era levels, and stay somewhere around there,” Schumer said. Still, he said, “I do think it is too much to treat capital gains the same way as ordinary income. We don’t need a 39.6 percent rate on capital gains.”


‘My way forward’

Schumer said he has spoken about his plan with White House officials and with Senate Majority Leader Harry Reid, a Nevada Democrat, and Sen. Max Baucus of Montana, chairman of the Finance Committee.

“This is my way forward, not theirs,” the senator said.

In a June speech, Baucus said the “only way forward” for the U.S. to reduce the long-term budget deficit is through a combination of spending cuts and tax increases. He didn’t specify details such as a top rate, a revenue level or how to address tax breaks.

Reid’s office didn’t immediately reply to a request for comment.

Sen. Orrin Hatch of Utah, the top Republican on the Finance Committee, criticized Schumer’s proposal. “The default position of the president’s party is [that] our economy, debt and entitlement programs are just fine, and the only solution is to raise taxes on one of the most productive segments of our economy,” Hatch said in an e-mailed statement.

--With assistance from Richard Rubin and Ryan Kerr in Washington.

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