Tags: Compromise | Budget | Deal | cliff

Lawmakers Open Rhetorical Room for Compromise Budget Deal

Monday, 10 Dec 2012 11:40 AM

 

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Lawmakers from both parties are leaving rhetorical room for a split-the-difference agreement with President Barack Obama on a U.S. budget deal.

The president and House Speaker John Boehner met one-on-one Sunday at the White House, with representatives for the two leaders offering no details of the negotiations yet issuing identical statements afterward that “the lines of communication remain open.”

While Obama and the White House’s bargaining team insist on raising tax rates for the nation’s highest earners, they are not demanding the precise 39.6 percent top rate spelled out in the president’s budget. And in the past few days, Republican congressional leaders have reiterated their opposition to rate increases without explicitly ruling them out.

It’s possible to chart an arithmetic compromise in the negotiations aimed at averting automatic tax increases and spending cuts set to take effect Jan. 1. It could contain about $1.2 trillion in new revenue and $1 trillion in spending cuts, midway between the two sides’ initial offers.

“We’ve set the parameters,” Representative Dennis Ross, a Florida Republican, told reporters last week. “The president had his offer. We’ve had our counterproposal. And somewhere within these parameters, I think, an offer is going to be considered.”

Middle Ground

The top income tax rate could be set at 37 or 38 percent, between the current 35 percent and the 39.6 percent rate that will return in 2013 if Congress does nothing. Both parties could accept down payments of revenue and spending cuts in 2013 and overhaul the tax code and entitlement programs next year.

Getting a split-the-difference deal remains politically difficult. Each side is waiting for the other to make the next offer, and a polarized Congress holds lawmakers on both sides who would reject a deal that violates each party’s principles, whether it’s Republicans rejecting tax increases or Democrats balking at cuts in entitlements such as Medicare.

“If we had a deal on Dec. 10, both bases would say, ‘You guys are nuts, you gave too soon, you gave too much.’ It’s not surprising that it hasn’t come together yet,” Peter Orszag, Obama’s first director of the Office of Management and Budget, said Monday on MSNBC’s “Morning Joe” program.

‘Coming Together’

“You can see a deal coming together on taxes, some increase on marginal tax rates, not to 39.6 percent, some reduction in tax expenditures,” said Orszag, vice chairman of global banking at Citigroup Inc. and a Bloomberg View columnist. The best approach, he said, “is to try and do as much up front as possible. The more that’s kicked to a second-stage process, with promises, detail TBD, the less credible it is.”

Bipartisan votes in the Republican-run House of Representatives and Democratic-controlled Senate probably will be needed to pass any Obama-Boehner deal, giving the minorities in both chambers power in the negotiations. Obama met last week with House Minority Leader Nancy Pelosi, a California Democrat.

Obama’s meeting with Boehner Sunday was the first known session since the president invited congressional leaders to the White House on Nov. 16, though the president and the speaker have spoken by telephone since then. They met privately, with no staffers attending, according to a congressional aide. The negotiations have narrowed to the two leaders of their parties.

Debt Ceiling

Further, lawmakers face additional choices about also addressing the $16.4 trillion federal debt ceiling and including economic stimulus provisions that Obama is seeking.

Boehner has insisted that any new revenue come from limiting tax exemptions and has proposed $800 billion, without offering any specifics.

The White House maintains that the government cannot raise that much money without affecting middle-class taxpayers, hurting charities or avoiding a rate increase for the highest earners. Obama has proposed $1.6 trillion in new revenue, including tax increases for the top earners.

Boehner, the chief Republican negotiator, didn’t rule out a smaller rate increase than what Obama wants — if it protects small businesses — when asked about it by reporters on Dec. 7. Boehner, who controls which bills come up for votes in the House, later issued a statement reiterating his opposition to rate increases without explicitly vowing to block one.

“I oppose tax rate increases because tax rate increases cost American jobs,” the Ohio Republican said. “That has not changed, and will not change.”

‘In Flux’

In an interview broadcast Monday morning on CBS’s “This Morning” program, Jeff Immelt, chairman and chief executive officer of General Electric Co., said “we’ve got to get this done now” because “the millions of people who work for us, their lives are in flux.”

“Everybody knows we need revenue,” said Immelt, head of the White House council on jobs and competitiveness. Boehner “has got to take the heat, and I trust that he can do it. We trust Speaker Boehner to do it, and he shouldn’t spend one minute using political capital to keep my rates low.”

On the question of spending cuts, Senator Richard Durbin, an Illinois Democrat, expressed continued openness for means-testing Medicare benefits.

“Medicare will run out of money in 12 years,” Durbin, the second-ranking Senate Democrat, said on NBC’s “Meet the Press” Sunday. A solution is needed, he said, while finding a way to “keep this a sound program and a solvent program.”

‘Tough Decisions’

Obama’s vagueness on entitlement spending cuts has frustrated Republicans while keeping his options open.

“I’m prepared to make some tough decisions on some of these issues,” he said in a Dec. 4 Bloomberg Television interview, without detailing what he would accept.

The final result will depend in part on lawmakers’ leverage and beliefs about who will get blamed if talks fail.

If Congress does nothing by Dec. 31, tax increases and spending cuts will start taking effect.

The Congressional Budget Office projects that the U.S. economy would enter a recession in the first half of 2013 if no action were taken, and, should that occur, both parties are poised to pin blame on the other’s intransigence.

“We cannot allow their reckless position to drive this economy into recession, a recession which the Republicans will own,” Durbin said of Boehner’s party.

Even if Obama and Boehner can’t find a comprehensive plan by Dec. 31, Congress could turn to a fallback deal that makes minimal changes that enjoy bipartisan agreement.

AMT Fix

For example, unless Congress acts, the alternative minimum tax for the 2012 tax year will expand to 32 million households from 4 million, costing taxpayers $92 billion in early 2013 and delaying tax filing for more than 60 million households until at least late March.

Alternatively, Republicans could pass a bill that would extend the expiring tax cuts for everyone except the highest earners, giving Democrats a temporary victory and using the impending debt ceiling as leverage in early 2013.

Senator Bob Corker, a Tennessee Republican, became the latest lawmaker to suggest that strategy Sunday.

“The focus then shifts to entitlements and maybe it puts us in a place where we actually can do something that really saves the nation,” he said on “Fox News Sunday.”

Time is running short, with this week important because of the days needed to turn a potential Obama-Boehner agreement into legislative language, sell it to lawmakers and pass it.

In 2010, Obama and Republicans reached a conceptual agreement to extend the George W. Bush-era tax cuts for two years on Dec. 6. The president signed it into law Dec. 17.

© Copyright 2014 Bloomberg News. All rights reserved.

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