WASHINGTON -- Narrowing a "fiscal cliff" negotiating gap,
President Barack Obama is backing off what had once been ironclad
A new proposal handed to House Speaker John Boehner on
Monday drops Obama's 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.
also 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.
in a move sure to create heartburn among some congressional Democrats,
Obama is proposing lower cost-of-living increases for Social Security
beneficiaries, employing an inflation index that would have far-reaching
consequences, including pushing more people into higher income tax
Those changes, as well as Obama's decision not to seek
an extension of a temporary payroll tax cut, would force higher tax
payments on the middle class, a wide swath of the population that Obama
has repeatedly said he wanted to protect from tax increases.
concessions signal a new stage in the negotiations, where posturing has
given way to pragmatism and where both sides still seem willing to lock
in on a substantial agreement rather than just putting off a fiscal day
of reckoning. To that end, Obama has conceded that a big bargain would
require giving up some of his proposals.
"I understand that I
don't expect the Republicans simply to adopt my budget," he said during
his post-election news conference last month. "That's not realistic. So,
I recognize we're going to have to compromise."
The talks, facing
a looming deadline, seek to avoid across-the-board tax hikes for nearly
all wage-earners as well as spending cuts at the Pentagon and in
domestic programs that are set to kick in at the start of the new year.
Economists inside and outside the government have warned that the
combination of the two - the "fiscal cliff" - could stall a weak
recovery and threaten a new recession.
Obama's steps toward
Boehner came after the House speaker took a plunge in a call to Obama on
Friday - while the nation was focused on the horror of a mass murder in
Newtown, Conn. - 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 quibbling over who
should pay them.
There are still plenty of disputes to iron out.
And people familiar with Obama's proposal were careful not to describe
it as his final offer.
The Obama plan says it is seeking $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
one counts the revenue triggered by the new inflation index, and they
say the spending reductions are closer to $930 billion if one discounts
about $290 billion in lower estimated debt interest.
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."
though, there is no doubt Obama has moved in Boehner's direction after
Boehner opened the door to a tax rate increase.
Obama's plan, like
Boehner's, would also raise taxes on dividends and capital gains from
15 percent to 20 percent. 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 percent on estates
after allowance for a $1 million exemption.
In making his offer,
Obama stiff-armed Republican demands to increase the eligibility age for
Medicare 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.
Obama's willingness to reduce future
cost-of-living increases in Social Security would also mean smaller
annual increases in government pensions and veterans' benefits. Annual
adjustments to income tax brackets would be smaller, pushing more people
into higher tax brackets.
Over time, because annual adjustments
to the poverty level would be smaller, the new index could reduce the
number of people eligible for programs such as Medicaid, Head Start,
food stamps, school lunches and home heating assistance.
some of that risk, Obama wants lower-income recipients to receive
protection against any loss from scaling back future cost-of-living
increases, people familiar with his plan said.