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Revenue must be part of any budget deal: Senator Reid

Senate Majority Leader Harry Reid speaks to reporters in the Capitol in Washington January 29, 2013. REUTERS/Kevin Lamarque
Senate Majority Leader Harry Reid speaks to reporters in the Capitol in Washington January 29, 2013. REUTERS/Kevin Lamarque

WASHINGTON (Reuters) - The top Senate Democrat said on Sunday tax revenue must be part of any deal to replace looming automatic spending cuts, despite Republican warnings that they will not buckle over this issue after conceding on tax rises for the rich a month ago.

In separate remarks, Defense Secretary Leon Panetta also took aim at the $85 billion in across-the-board spending cuts, known as the sequester, which bite on March 1 unless Congress takes action, and warned they would harm U.S. security.

Senate Majority Leader Harry Reid said the American people backed his party in the argument over tax increases and spending cuts, singling out tax breaks for oil companies and corporate jets as examples of loopholes he would close.

"The American people are on our side. The American people don't believe in these austere things. We believe that the rich should contribute," he told ABC News program "This Week With George Stephanopoulos."

The March 1 cuts are a holdover from a 2011 budget deal to lift the U.S. debt limit and deliver $1.2 trillion in spending cuts. These were meant to be so painful that Congress would ultimately replace them with other budget savings.

Economists and several bipartisan congressional commissions say these must include a mixture of reforms to the tax code and so-called entitlement spending on social security, and Medicare and Medicaid health programs for poor and older Americans.

But bitterly divided lawmakers have so-far failed to agree a plan, threatening across-the-board cuts that could dent a fragile U.S. economic recovery, and efforts to lower lofty U.S. unemployment that rose 0.1 percentage point to 7.9 percent in January.

Democratic President Barack Obama won re-election in November in a campaign built solidly on his argument that richer Americans should pay more in taxes to help lower U.S. deficits over time.

He won the first round of that debate when Republicans allowed taxes to rise for American families earning more than $450,000 a year, in order to preserve tax cuts for everyone else that would otherwise have expired on January 1. Reid said that Democrats would continue to make that case.

"We believe we should fill those tax loopholes — get rid of them, I should say. And that's where we need to go," Reid said. "And I've got a pretty good fan base for that: the American people. Republicans, Democrats, and Independents."

Panetta, the outgoing secretary of defense and himself a Democrat, told NBC's "Meet the Press" that the automatic spending cuts would be deeply harmful.

"If sequester happens, it is gonna badly damage the readiness of the United States of America," he said. "We are gonna weaken the United States and make it much more difficult for us to respond to the crises in the world."

(Reporting By Alister Bull; Editing by Mohammad Zargham)

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