Talks to deal with ‘fiscal cliff’ advance

Social Security likely on table

House Speaker John Boehner, R-Ohio, shown in this July photo on Capitol Hill in Washington, met with President Obama at the White House on Monday in search of a compromise to avert the economy-threatening “fiscal cliff.”
House Speaker John Boehner, R-Ohio, shown in this July photo on Capitol Hill in Washington, met with President Obama at the White House on Monday in search of a compromise to avert the economy-threatening “fiscal cliff.”

— President Barack Obama has agreed to curtail future cost-of-living increases for recipients of Social Security and softened his demand for higher taxes at upper income levels as part of accelerating negotiations with House Speaker John Boehner to avoid a “fiscal cliff,” people familiar with the talks said Monday.

Speaking a few hours after Obama and Boehner met at the White House, these people said the president was seeking a higher tax rate beginning at incomes over $400,000, up from the levels of $200,000 for individuals and $250,000 for couples that were cornerstones of his successful campaign for re-election.

Obama also wants lower income recipients to receive protection against any loss from scaling back future cost-of-living increases, these officials said.

His offer did not include raising the age of Medicare eligibility from 65 to 67, a Republican goal that has drawn particularly strong objections from Democratic liberals.

The 45-minute meeting came after Boehner on Friday offered $1 trillion in higher tax revenue over 10 years and an increase in the top tax rate on people making more than $1 million a year. The House speaker also is offering a large enough extension in the government’s borrowing cap to fund the government for one year before the issue must be revisited - conditioned on Obama’s agreeing to $1 trillion in cuts.

Given the pressing timetable, the two men are hoping to set the broad parameters of an agreement while taking care of urgent business like extending tax cuts for most earners, preventing sharp cuts in Medicare physician payments, and making sure millions of taxpayers don’t get struck by the alternative minimum tax.

The idea is that other steps, like overhauling the tax code and additional cuts to popular programs like Medicare would take more time and be fleshed out next year.

Obama is also pushing extending jobless benefits for the long-term unemployed and wants an extension of the 2 percentage-point payroll-tax cut or something like it.

On other points, Obama’s latest offer dropped his earlier proposal to extend a payroll-tax cut due to expire at year’s end, and he agreed to find more savings in government spending than in his earlier offer.

The new offer that was given to Boehner at the White House closed the gap between the two men considerably on a framework for a deal.

At the same time, with rank-and-file conservatives distressed over higher taxes, aides to Boehner were quick to find fault with Obama’s latest offer.

Brendan Buck, a spokesman, said that “a proposal that includes $1.3 trillion in revenue for only $930 billion in spending cuts cannot be considered balanced. We hope to continue discussions with the president so we can reach an agreement that is truly balanced and begins to solve out spending problems.”

Earlier, at the White House, spokesman Jay Carney sidestepped when asked about curbing cost-of-living increases for benefit programs. The president “is prepared to make tough choices. He also understands that his bill will not, as written, likely be what the final compromise, if there is one, looks like,” he said.

“But he insists and will insist before he signed anything that there is the balance that he seeks that is fair and that seniors aren’t bearing the burden so that the wealthy bear less - those who can afford it most bear less.”

A spokesman for Boehner declined comment on the tax proposals.

The two negotiators are running out of time if they hope to make an agreement and get it passed through Congress to avert the fiscal cliff, a mixture of more than $600 billion in automatic spending cuts and across the-board tax increases set to start Jan. 1.

Senate Majority Leader Harry Reid, a Nevada Democrat, said Monday that it appears the chamber will need to reconvene Dec. 26 to work on the budget.

Boehner’s latest offer broke a long impasse. It calls for about $450 billion in revenue raised in part from increasing the top rate on million-dollar-plus income from 35 percent to the Clinton-era rate of 39.6 percent.

The additional revenue required to meet the $1 trillion target would be collected through a rewrite of the tax code next year and by slowing the inflation adjustments made to tax brackets.

In return, Boehner is asking for $1 trillion in spending cuts from government benefit programs like Medicare. Those cuts would defer most of a painful set of across the-board spending cuts set to slash many domestic programs and the Pentagon budget by 8-9 percent, starting in January.

Boehner’s proposal was described Sunday by officials familiar with it. They required anonymity because of the sensitivity of the talks.

Boehner also had pressed for a less generous inflation adjustment for Social Security benefits, a move endorsed by many budget hawks. The new inflation adjustment would also raise about $70 billion over a decade in new revenue because tax brackets would rise more slowly for inflation, driving people more quickly into higher tax brackets.

Several officials also said Monday that Boehner’s offer late last week to accept higher tax rates included provisions that would mean higher taxes on investment income and dividends earned by upper-income Americans and also in the estate tax.

The people who described the talks did so on condition of anonymity, citing the secretive nature of the discussions.

Time is running out for a deal before the adjournment of Congress. Tax rates on all workers go up in January, and $109 billion worth of across-the-board spending cuts begin to take effect then as well. Taken together with the expiration of extended jobless benefits and a 2-percentage-point break in Social Security payroll taxes, the combination of austerity steps threatens to send the economy back into recession.

The remaining steps to reaching a deal - particularly how much to cut Medicare and whether to impose the new, less-generous inflation adjustment to Social Security - are difficult. Then comes the job of gaining approval in Congress, where GOP conservatives have been railing against higher tax rates and Democrats have taken a harder line against cuts to Medicare.

Boehner’s $1 trillion cut proposal would be paired with a comparable increase in the borrowing cap, enough to keep the government borrowing for about a year. But if the cuts are smaller, the debt limit increase would be smaller as well.

“Our position has not changed. Any debt limit increase would require cuts and reforms of a greater amount,” Buck said.

Meanwhile, some conservative House Republicans have disagreed with Boehner’s approach as he reaches for a deal. In the recent words of Rep. Jeff Landry of Louisiana, “If there’s any blame to be placed, it’s squarely on his shoulders.”

Other conservatives, however, are giving Boehner room to negotiate. They say they might accept a tax increase for people with high incomes so long as the deal also includes significant spending cuts.

In the words of Rep. Blake Farenthold of Corpus Christi, Texas, “We don’t see how we have a whole lot of leverage.” Information for this article was contributed by Jim Kuhnhenn,Andrew Taylor, David Espo, Ben Feller, Stephen Ohlemacher and Alan Fram of The Associated Press and by Heidi Przybyla, Richard Rubin, Roger Runningen, Margaret Talev, James Rowley, Kathleen Hunter and Roxana Tiron of Bloomberg News.

Front Section, Pages 1 on 12/18/2012

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