Obama, Boehner One Step Closer on Fiscal Cliff Compromise

House Speaker John Boehner, a Republican from Ohio
By JIM KUHNHENN

WASHINGTON -- Just two weeks before the economy-threatening "fiscal cliff" is due to kick in, both President Barack Obama and House Speaker John Boehner are making significant concessions to each other, backing off what had once been ironclad positions on how to avoid the huge automatic spending cuts and tax increases.

The moves signal a new stage in the negotiations, which 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.

Obama's move follows concessions by Boehner on higher tax rates for the wealthy.

In the 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.

And 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 brackets.

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.

As public posturing has given way to pragmatism, 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 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."

Either way, 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.

To avoid 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.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

Add a Comment

*0 / 3000 Character Maximum

62 Comments

Filter by:
Franklyn Wiggin

The GOP have no idear who we are . They think they can run gov. They think that they can run gov. There way and only they know what's best.

December 24 2012 at 8:22 AM Report abuse rate up rate down Reply
stevenv469

dont give in. go over the cliff. it wont be that bad except for rich and defense dept

December 18 2012 at 10:57 PM Report abuse +2 rate up rate down Reply
Drue

I can't belive that these two, supposely well educated, top leaders of our great country are acting like two little kids fighting over the last lollypop. Then saying the people receiving social security shouldn't get such a large raise---I guess a1.7% is a lot but then Medicare payments come out of this big raise. That doesn't leave very much. I would like to see the above two live on Social Security for about a year. They are so out of touch with the middle class. Reducing the Military Budget is another of their screwed-up ideas. Make our men and women fight with less equipment and protection proves they don't care about their lives. They shouldn't be over there - - bring them home!! TROXELLSW@AOL.COM

December 18 2012 at 7:37 PM Report abuse rate up rate down Reply
canoeal

No rea; fiscal cliff,,,more a politidally induced, media hyped, pothole...

December 18 2012 at 6:47 PM Report abuse +2 rate up rate down Reply
wil_davis

Has it dawned on anyone that the reason NO republican politician, from John McCain, , Lindsey Graham, to even Newt Gringrich, which are constantly on the Sunday morning talk shows except for last Sunday, the Sunday after the Newtown CT shootings is maybe because they didn't have permission from the NRA on what to say in regards to that senseless killing and trhe resulting gun control legislation they know is coming. I think it's about time the American public, express moral outrage and indignation that we have politicians on both sides of the aisle, that have more allegience to the likes of Grover Norquist and the NRA, than they do to the public that voted them into office. Understandable so there is gridlock in our political system, but is this gridlock based upon substantiated facts or our political leaders fear of the likes of the Koch Brothers, Grover Norquist or the NRA. It's a sad state when we have polticians that are so quick to send our military off to foreign lands, and put their life on the line to defend our American way of life, yet when it comes to these same politicians to stand up for the American public and do what's right for this country, the only convictions they have any allegience to is the Tea Party (Koch Brothers), Grover Norquist and the NRA. When I was in the military, there was a saying that I used to to motivate...Lead, follow or get out of the way...well I think it's time for all of our politcial leaders, lead, follow or gewt the hell out of office and let real americans that have the moral convictions of their own principles, to stand up and do whats right for this country as a whole, and not just the wealthy and ungrateful few.

December 18 2012 at 6:47 PM Report abuse +2 rate up rate down Reply
1 reply to wil_davis's comment
cyclsource

Here's a quick fix for the Republican's....let the country go over the cliff raising all taxes instead of only on the $400k that the prez now agrees to. Use whatever is necessary from these revenues to hire an armed security person for every single public school in America and let my tax increase pay for this. Establish a TSA for schools and protect our kids from mayhem. Let the rich bitch about this expenditure...

December 18 2012 at 10:28 PM Report abuse +1 rate up rate down Reply
hankathome

Will someone please tell the American voting public that Reagan raised the debt limit 18 times, lowered the highest tax rate from 70% to 28% and then raised taxes 8 times in 7 years, mostly against business, you know the "" job creators".. If this is a fiscal cliff that wasa leap into space. One step for man one leap for mankind.

December 18 2012 at 6:14 PM Report abuse +4 rate up rate down Reply
1 reply to hankathome's comment
jacqueduvall

Maybe you need to educate yourself on what taxes he raised, not once was it income taxes, all those raises were temporary excise tax increases, to support infrastructure projects he increased the gas tax as an example. There's a big difference on what taxs you increase, it's something Democrats will never understand. Bill Clinton increased the income tax, nothing happened, he than agreed with Newt and signed a decrease in Capital Gains. All of a sudden we had small surpluses, than his Dot-Com Bubble burst and profits were gone forever.

December 18 2012 at 7:48 PM Report abuse +1 rate up rate down Reply
Mr. Needles Ca.

tea party is just another face of the kkk

December 18 2012 at 4:59 PM Report abuse +1 rate up rate down Reply
3 replies to Mr. Needles Ca.'s comment
rwhorient

Need to cut spending on any deal . Without spending/entitlement reform iwill push the USA towards Greece. It takes guts for congress and Obama to actually cut spending- not just the rate of budget growth.

December 18 2012 at 4:53 PM Report abuse +1 rate up rate down Reply
1 reply to rwhorient's comment
wil_davis

I agree with spendingt cuts, but before we cut any spendings, let's look at the fraud and waste in the federal budget. I remember Sarah Palin talk about the 230 million dollars she gor for the bridge to nowhere, she stopped the building of that bridge, but she never gave that money back to the federal government, so lets start with the wasteful spending. Let's next look at the wasteful spending that we spend in the defense budget. I remember the days of the $200.00 toilet seats for military planes, I always question why can't they use the same toilet seats they used in commercial planes...next, I'd like to cut the spending that we spend on the federal workers, including our politicians, let's stop funding their retirements and medical care. Let's also require that before we give any politicna a lifetime pension, let's hold them to the same standards we do for the military, let them get a pension only after they spend at least 20 yrs in the federal government, either as a politican or in federal service...lastly, let's put term limits on all of our politiicans in public office. Some of these guys have been in office so long, they forget what it's like to live in the real world of the people that vote them into office

December 18 2012 at 6:56 PM Report abuse +3 rate up rate down Reply
nnojr

It doesn't matter, the House is not passing it, the Tea party will still stop it! Congress is broken and it can't be fixed. Our biggest mistake is putting millionaires in Congress! Putting people holding degrees worthless in society and with no talents or vocations! Political Science is not a Science!

December 18 2012 at 3:56 PM Report abuse +2 rate up rate down Reply
1 reply to nnojr's comment
cferrin104

stop being so negative

December 18 2012 at 3:57 PM Report abuse -1 rate up rate down Reply
newsmyrnasuite

Look out if you are a woman...social security cuts will effect you the most. SO WHAT ELSE IS NEW? We always get the scraps.

http://www.dailyfinance.com/2012/12/18/chained-cpi-how-washington-is-likely-to-slice-social-security-b/

December 18 2012 at 3:46 PM Report abuse rate up rate down Reply