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Ideas new and old abound in continuing search for revenue

In the battles over the budget, there are really just two issues: How much revenue the government takes in and how much it spends. 

President Barack Obama signed a big tax increase into law on Jan. 2, and since then Republicans have tried to keep the fight squarely focused on the spending-side of the ledger. But that hasn't stopped Democrats and others from seeking different, and at times innovative, ideas for bringing in more cash to federal coffers.

Some of them are new, such as limiting the amount of money that could be shielded from taxes in retirement accounts. But not all of the proposals are targeted at higher earners.

Although it may be months before a tax reform effort promised by the chairmen of the House and Senate tax-writing committees moves into higher gear, an increasing number of items are now on the tax menu.

CNBC's Jim Cramer, Former New Mexico Gov. Bill Richardson, GOP strategist Mike Murphy, Politico's Maggie Haberman and NBC's Andrea Mitchell discuss the fight over taxes and spending in Washington.

Some of these proposals could be ingredients in a compromise deal on taxes and entitlements between Obama and GOP congressional leaders.

In Obama’s budget proposal for Fiscal Year 2014, which will be formally released Wednesday, administration officials say the president will offer a few new contributions to the revenue debate:

  • A change in the inflation indexing formula used to set the levels for the tax brackets, the standard deduction and other provisions in tax law. Obama will propose using a less generous indexing measure called “chained CPI.” According to an analysis by the Congressional Budget Office, using chained CPI for the tax code would raise nearly $124 billion in new revenue over 10 years.
  • An increase in taxes on cigarettes and other tobacco products in order to help pay for an initiative to provide preschool education to four-year-old children.
  • A limit on the amount of money that could be shielded from taxation in retirement accounts. The Obama proposal would prohibit individuals from accumulating more than $3 million in IRAs and other tax-sheltered retirement accounts. This proposal would raise $9 billion over 10 years, according to administration officials.

Obama will likely reiterate his support for an idea he has proposed since 2009 and which Senate Democrats endorsed in their budget resolution: limiting deductions and other tax preferences for upper-income people.

Meanwhile, there’s some bipartisan support for a tax or fee on carbon dioxide emissions. Former Secretary of State George Shultz --who served under President Ronald Reagan -- and conservative University of Chicago Nobel laureate economist Gary Becker co-authored an op-ed in Monday’s Wall Street Journal endorsing the idea of a revenue-neutral tax on carbon.

This would encourage producers and consumers to shift away from more carbon-intensive energy sources such as coal and toward less carbon-intensive sources. They’d also eliminate tax breaks for various energy sources, such as biodiesel. The revenue from the carbon tax could be refunded to taxpayers, perhaps in the form of a “carbon dividend,” Shultz and Becker argue.

Although their version is revenue-neutral, the carbon tax idea could end up being part of a larger package of revenue raisers.

Susan Walsh / Susan Walsh / AP

President Barack Obama gestures as he speaks during an Easter Prayer Breakfast in the East Room of the White House in Washington, Friday, April 5, 2013.

The carbon tax concept won the support of 41 senators, all of them Democrats, during a vote three weeks ago, when it was proposed by Sen. Sheldon Whitehouse, D-R.I., as an amendment to the Fiscal Year 2012 budget resolution.

Whitehouse said Tuesday that the lesson of that vote was “we’ve got a more solid base of support than I thought and obviously we need lots of room to grow in order to move it along.”

Whitehouse said a carbon tax could be part of the tax reform effort that Senate Finance Committee chairman Sen. Max Baucus, D-Mont., and House Ways & Means Committee chairman Rep. Dave Camp, R-Mich., will lead this year.

The Rhode Island Democrat argued that a carbon tax could be made appealing to Republicans since the revenue that would be generated could be used to pay for tax cuts: “They’d probably want to do things like get rid of the estate tax, lower the corporate tax rate – I’m not sure we’d be thrilled with all of those – but it’s a discussion worth having,” he said.

Senate Finance Committee ranking Republican Orrin Hatch of Utah said he had noticed Shultz’s support for a carbon tax, adding, “I’ve basically been against a carbon tax, but I’ll look at it and see.”

Another Senate Finance Committee member, Ben Cardin, D-Md. said Tuesday the carbon tax is an idea “absolutely we need to take a look at ... we need to look at different revenues to take care of our energy and transportation needs.”

As for using chained CPI to index parts of the tax code, Cardin said he was “very much aware” of the increased revenue that would result from that change. “More revenue is a good idea, but chained CPI also affects the beneficiaries not only of Social Security but other programs. My preference is to do entitlement reform without affecting middle-income and lower-income beneficiaries.”

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