WASHINGTON – Both President Barack Obama and Congress’ most powerful Republican are making significant concessions just two weeks before the economy-threatening “fiscal cliff” is due to kick in, backing off once-ironclad positions on how to avoid the huge austerity measures of automatic spending cuts and tax increases.
But House Speaker John Boehner on Tuesday made a move to give Republicans political cover if Washington fails to reach a deal in time. He said he was preparing a bill that would allow taxes to go up on everyone earning more than $1 million a year — a proposal that the White House and Democrats in Congress quickly said wouldn’t go anywhere.
“I continue to have hope that we can reach a broader agreement with the White House,” Boehner told reporters. But he said when it comes to offering a package that balances tax increases with spending cuts, “The president is not there yet.”
Boehner’s aides said his backup proposal did not mean that he was cutting off negotiations with Obama. The White House has previously rejected his attempts to extend tax cuts for families making up to $1 million.
Even Boehner’s fellow Republicans reacted coolly to any plan that includes an increase in the tax rate. Conservatives and small-government tea partierssignalled that Boehner lacked the votes for passage.
“I think it’s a terrible idea,” said Rep. Raul Labrador. “For a lot of reasons.”
Overall talks picked up steam Monday with Obama’s offer to drop his long-held insistence that taxes rise on individuals earning more than $200,000 and families making more than $250,000. He is now offering a new threshold of $400,000 and lowering his 10-year tax revenue goals from the $1.6 trillion he had argued for a few weeks ago.
The negotiations seek to avoid tax hikes for nearly all working Americans, as well as deep spending cuts at the Pentagon and in domestic programs, that are set to kick in Jan. 1 if a deal isn’t reached on addressing the country’s stubborn deficit spending.
The U.S. is on a path to its fifth straight $1 trillion-plus deficit.
Economists inside and outside the government have warned that the combination — the “fiscal cliff” — could stall a weak recovery and threaten a new recession.
For weeks, the talks had limped along. But the recent surge in negotiations comes after Boehner took a plunge in a call to Obama on Friday — while the nation was focused on the school shooting in Newtown, Connecticut — and agreed to accept an increase in tax rates for taxpayers who earn more than $1 million. Boehner’s plan would raise about $1 trillion in taxes over 10 years.
That was a barrier-breaking moment, changing the negotiations from a fundamental debate over whether tax rates should rise at all to negotiating over who should pay them.
In his new proposal, Obama abandoned his demand for permanent borrowing authority. Instead, he is now asking for a new debt limit that would last two years, putting its renewal beyond the politics of a 2014 midterm election.
As public posturing has given way to pragmatism, both sides seem willing to lock in on a substantial agreement rather than put off a fiscal day of reckoning.
People familiar with Obama’s proposal were careful not to describe it as his final offer.
The Obama plan seeks $1.2 trillion in revenue over 10 years and $1.2 trillion in 10-year spending reductions. Boehner aides say the revenue is closer to $1.3 trillion if revenue triggered by the new inflation index is counted, and they say the spending reductions are closer to $930 billion if one discounts about $290 billion in lower estimated debt interest.
“Any movement away from the unrealistic offers the President has made previously is a step in the right direction,” Boehner spokesman Brendan Buck said. “But a proposal that includes $1.3 trillion in revenue for only $930 billion in spending cuts cannot be considered balanced.”
Obama’s plan, like Boehner’s, would also raise taxes on dividends and capital gains from 15 per cent to 20 per cent. Both would also reduce the number of deductions and exemptions that wealthy taxpayers can claim. Obama’s proposal also would let estate taxes revert to 55 per cent on estates after allowance for a $1 million exemption.
In making his offer, Obama stiff-armed Republican demands to increase the eligibility age for the Medicare health program for the aging from 65 to 67, a goal Democrats strongly reject. He also sought to contain cuts in Medicare and other health care programs to about $400 billion over 10 years, less than what Republicans want. And he is continuing to seek spending on unemployment assistance and on public works projects.
Associated Press writer Jim Kuhnhenn contributed.