President Obama made a new fiscal cliff offer Monday that would raise
$1.2 trillion in taxes and lift the debt limit for two years, and
Speaker John Boehner (R-Ohio) rejected it.
The president made the offer to the Speaker in a 45-minute meeting at the White House on Monday, in the latest sign of the quickening pace of negotiations to avoid the more than $500 billion in automatic tax increases and spending cuts due in January.
Boehner’s office on Monday night said the proposal was “a step in the right direction,” but senior Republican congressional aides sought to downplay talk that an agreement was close. Aides said significant differences remained across a range of areas, including taxes, entitlement reforms and the timing for the implementation of an agreement over the next two years. But they insisted that an agreement was still possible in the coming days and that negotiations are ongoing.
“It’s a small step in the right direction, but there are still substantive issues that are unresolved and need to be resolved before any agreement can be come to,” one Republican leadership aide said.
Boehner is set to brief rank-and-file Republicans Tuesday morning on the state of negotiations, the first time the House conference will meet since the Speaker agreed to consider tax rate increases in a deficit deal last week.
The White House and Congress are running out of time to complete an agreement by Christmas, and Senate Majority Leader Harry Reid (D-Nev.) said Monday that it appeared likely the Senate would have to return to session on Dec. 26 to deal with the fiscal cliff.
Yet it was clear that significant progress has been made in recent days, with each side making large concessions. In a phone call with the president on Friday, Boehner for the first time said he would consider higher tax rates for families earning more than $1 million a year.
And in the new White House offer on Monday, Obama moved off his long-held position that tax rates go up for family income above $250,000 a year. The president is now proposing that threshold be moved to $400,000 in annual income.
Obama originally proposed a deal seeking $1.6 trillion in new tax revenue, but on Monday his offer called for $1.2 trillion, which the White House noted was midway toward the Speaker’s initial offer of $800 billion.
The president also moved in the Speaker’s direction on spending cuts, offering an equal amount - $1.2 trillion – as new revenue, according to sources familiar with the negotiations. But Republican aides disputed that characterization. Under their calculations, the White House offer contains $1.3 trillion in new taxes and about $930 billion in net spending cuts, because of a difference in how changes to the future debt interest payments are treated. Once new proposed spending for infrastructure and extended unemployment benefits that the White House wants are included, the net spending cut is $850 billion, GOP aides said.
On entitlements, Obama is offering to change the way inflation is calculated in benefit programs, including in Social Security, a move opposed by many liberals. The new method, known as chained consumer price index (CPI), would cut $130 billion more in spending. A source said that provisions are included to protect the most vulnerable.
Republican aides said that issue remained unresolved. The aides said that while Boehner offered to guarantee any new revenue target, they had yet to finalize exactly how much revenue would go up in 2013 and how much would kick in later, subject to triggers associated with tax and entitlement reform to be completed next year.
The Speaker is also resisting a White House proposal to extend the debt limit for two years, which is itself a change from Obama’s previous position calling for a permanent increase in federal borrowing authority. Boehner is said to have offered to increase the debt limit for one year in the proposal he made on Friday.
Last week, Obama put forward $250 billion in cuts to “other mandatory” spending like farm programs and offered $350 billion in healthcare cuts, for a total of $600 billion in spending cuts. He is now upping that offer to include $200 billion in discretionary cuts to defense and non-defense agency budgets.
In total, the administration says it is offering $1.22 trillion in spending cuts, including interest savings, chained CPI, the discretionary cuts, $400 billion in healthcare cuts and $200 billion in other mandatory spending.
The offer would turn off most of the $109 billion in sequester cuts set to hit in 2013 and set up a framework for individual and corporate tax reform next year.
Obama is still asking for extension of unemployment benefits and infrastructure spending to stimulate the economy but does not appear to be seeking extension of the current payroll tax holiday.
The offer would patch the Alternative Minimum Tax, avoid an increase in the physician payment rate under Medicare and extend various other expiring tax provisions.
It would also raise the top rates on capital gains and dividends to 20 percent, from the current 15 percent, and return the estate tax to 2009 parameters.
The White House had been proposing to tax dividends as ordinary income, a proposal which could have brought the rate back to 39.6 percent. Wealthy taxpayers will also face a 3.8 percent surcharge on investment income in 2013, to help pay for the Democratic healthcare law.
Under the Obama proposal, the estate tax would have a 45 percent top rate, with a $3.5 million exemption per person. Several Democratic senators are on record calling to extend the current estate tax parameters – a top rate of 35 percent and a $5 million exemption.
The Medicare eligibility age remains a sticking point in the talks, a source familiar within the negotiations said.
The White House argues that including savings from ending the wars in Afghanistan and Iraq and last year’s debt limit deal, the Obama offer reduces the deficit by $4 trillion over ten years.
Boehner's office is using different math to size up the deal and says it is still not balanced.
"Any movement away from the unrealistic offers the president has made previously is a step in the right direction, but a proposal that includes $1.3 trillion in revenue for only $930 billion in spending cuts cannot be considered balanced," Boehner spokesman Michael Steel said. "We hope to continue discussions with
the president so we can reach an agreement that is truly balanced and begins to solve our spending problem.”
The liberal advocacy group MoveOn swiftly blasted the new offer.
"If such a deal were proposed by the President and Speaker, MoveOn members would expect every Senate and House Democrat to do everything in their power to block it. Senate Majority Leader Reid would play a crucial role, as MoveOn members would count on him and other senators to remain true to their repeated promises to keep Social Security benefits off the table," Executive Director Justin Ruben said.
This story was last updated on Dec. 18 at 7:42 a.m.