Obama’s Cliff Offer Spurned
By JANET HOOK, DAMIAN PALETTA and CAROL E. LEE (WSJ): President Barack Obama made an opening bid in budget talks with Republicans that calls for a $1.6 trillion tax increase, $50 billion in infrastructure spending in 2013 and new power to raise the federal debt limit, a provocative set of demands that Republicans said represented a step backward in efforts to avoid looming tax increases and spending cuts.
The proposal marked an opening salvo in negotiations over the fiscal cliff and represented a particularly expansive version of the White House’s wish list, with a heavy focus on tax increases and spending proposals—including keeping in place a payroll-tax cut and extended unemployment benefits.
The Fiscal Cliff
Q&A: What Is the Fiscal Cliff?
Cliff Talk: Latest From Boehner, McConnell, Reid, Pelosi
The Debt Ceiling Returns to Center Stage
Obama Flexible on Tax Rates
WashWire: Executives Optimistic
Live: Fiscal Cliff Stream
Congressional leaders remained at odds Thursday over the progress of negotiations to avoid the so-called fiscal cliff, with House Speaker John Boehner saying no “substantive progress” had been made, and Democrats saying they were confident an agreement could be reached by Christmas. Jerry Seib has details on The News Hub. Photo: Getty Images.
Last August, President Obama and Congress put the U.S. economy on course to go over a “fiscal cliff.” With the 2012 presidential election decided, WSJ’s David Wessel tells you everything you need to know about the “cliff” but were afraid to ask.
Falling Over the Fiscal Cliff
See some scenarios for how different groups of people may be affected by the tax changes that will take place if the fiscal cliff isn’t resolved by the Jan. 1., 2013, deadline.
More photos and interactive graphics
Republicans haven’t put any comparable offer on the table. They have indicated willingness to accept $800 billion in revenues over 10 years, half the amount Mr. Obama proposed. And they have sought far more in spending cuts in exchange for their concessions on taxes.
“No substantive progress has been made in the talks between the White House and the House over the last two weeks,” House Speaker John Boehner (R., Ohio) said after meeting with Treasury Secretary Timothy Geithner Thursday and speaking to Mr. Obama by phone Wednesday night. “The White House has to get serious.”
The talks, which have weeks to go, will likely result in many twists and turns, with the White House offer a potential starting point for negotiations. It already has signaled it isn’t wedded to raising the top income-tax rates all the way back to peak Clinton-era levels. Both sides have a good sense of what concessions they are willing to offer, but neither wants to go first for fear of losing leverage.
Mr. Obama is going to Pennsylvania Friday to visit a toy company and continue pressuring House Republicans to allow tax increases on upper-income Americans. Mr. Obama’s plan would raise roughly $1 trillion over 10 years by ending Bush-era tax cuts for upper-income Americans. It would raise another $600 billion over 10 years through a number of changes to the tax code, including limits on tax breaks for those households.
“Right now, the only thing preventing us from reaching a deal that averts the fiscal cliff and avoids a tax hike on 98% of Americans is the refusal of congressional Republicans to ask the very wealthiest individuals to pay higher tax rates,” said White House spokeswoman Amy Brundage.
GOP aides said the offer brought to Capitol Hill by Mr. Geithner calls for increasing tax rates on those with income over $250,000 in exchange for a one-year postponement of planned spending cuts in defense and domestic programs, and some $400 billion in savings over 10 years from Medicare and other entitlement programs.
One of the most eye-opening elements of the White House plan was a proposal that Congress give up its power to raise the U.S.’s formal borrowing limit, which has become a running source of political conflict. A clash over raising the limit in 2011 led to a downgrade of the U.S.’s once-pristine credit rating.
The White House wouldn’t confirm the details described by congressional Republican officials. Earlier in the day, after GOP leaders met with Mr. Geithner, they made plain they didn’t like what they heard. “The country doesn’t need a victory lap, it needs leadership,” said Mr. Boehner.
Mr. Boehner’s tone was a change from earlier this week when he said he was optimistic a compromise could be reached. He said that while conversations with the president and Mr. Geithner were direct and frank, he called on Democrats to offer specific spending cuts and changes to entitlement programs such as Medicare and Medicaid.
The $400 billion in entitlement savings proposed by the White House, the same number contained in Mr. Obama’s 2013 budget proposal, is seen by Republicans as being insufficient because it wouldn’t tackle the program’s structural problems.
Earlier in the day, Democrats said they were confident an agreement could be reached by Christmas. “We remain optimistic that this can get done, but the president’s principles are clear,” White House spokesman Jay Carney said.
The next step in the negotiations isn’t clear. That GOP aides chose to describe the offer in detail suggests relations between the two sides are somewhat rocky. Yet both sides remain confident talks will continue. “There’s the public choreography, then there is the real choreography,” said Rep. Rob Andrews (D., N.J.). “To reach a deal, it has to look like there was a lot of fighting before the deal was reached.”
The White House proposal indicates the extent to which Mr. Obama believes he has the upper hand in negotiations following the November elections. It includes a two-stage process that would enact some deficit-reduction and spending measures by the end of the year and then set the stage for an overhaul of the tax code and entitlement programs in 2013.
GOP aides said they were disappointed that neither stage included more in spending cuts. The bill would defer for one year the roughly $110 billion in spending cuts set to take effect Jan. 2 in both defense and domestic programs, offset by “unspecified savings” in mandatory programs such as the farm bill.
In the second stage, the proposal calls for $400 billion in Medicare and other health savings but doesn’t include the kinds of major changes in the structure of the program they were seeking, such as an increase in the eligibility age.
The White House proposal would include the extension of several provisions due to expire at the end of 2012: a reduction in payroll taxes, extended unemployment benefits, Medicare payment levels for doctors and a measure to limit the expansion of the Alternative Minimum Tax. The AMT originally was passed to ensure those with high incomes pay at least some tax but now affects many middle-income taxpayers who itemize deductions.
A likely confrontation looms over the White House’s inclusion of its debt-ceiling provision. Mr. Boehner has insisted, as he did in 2011, that any debt increase be accompanied by a comparable amount in spending cuts. How a deal might be struck in return for Congress giving up its approval power isn’t clear. In Mr. Obama’s proposal, Congress would only have the power to block an administration move to raise the limit.
The current debt ceiling is $16.394 trillion, and the government currently has $16.244 trillion in debt. The Congressional Budget Office estimated Thursday the ceiling would be reached in February or March.
The White House request for the payroll tax cut extension—or something similar—and infrastructure spending reflects the administration’s concern about the pace of the economic recovery. Also included is a request to extend a tax break that allows businesses to take an additional deduction when purchasing certain types of equipment.