Makings of a fiscal deal behind the hot rhetoric

Pres­i­dent Barack Obama, flanked by National Gov­er­nors Asso­ci­a­tion (NGA) Chair­man, Delaware Gov. Jack Markell, and NGA Vice Chair, Okla­homa Gov. Mary Fallin, meets with the NGA exec­u­tive com­mit­tee regard­ing the fis­cal cliff Tues­day in the Roo­sevelt Room at the White House in Wash­ing­ton. Trea­sury Sec­re­tary Tim Gei­th­ner is at right. (Asso­ci­ated Press | Charles Dharapak)

ANDREW TAYLOR

JIM KUHNHENN

Asso­ci­ated Press

WASHINGTON — Blus­ter and hot rhetoric aside, the White House and House Repub­li­cans have iden­ti­fied areas of sig­nif­i­cant over­lap that could form the basis for a final agree­ment after “fis­cal cliff” pos­tur­ing gives way to hard bargaining.

Both sides now con­cede that tax rev­enue and reduc­tions in enti­tle­ment spend­ing are essen­tial ele­ments of any deal. If the talks suc­ceed, it prob­a­bly will be because House Speaker John Boehner yields on rais­ing tax rates for top earn­ers and the White House bends on how to reduce spend­ing on Medicare and accepts some changes in Social Security.

The White House and Boehner kept up the ridicule of each other’s nego­ti­at­ing stances on Tues­day. But beneath the tough words were the pos­si­ble mak­ings of a deal that could bor­row heav­ily from a near-bargain last year dur­ing debt-limit negotiations.

Then, Obama was will­ing to reduce cost-of-living increases for Social Secu­rity ben­e­fi­cia­ries and increase the eli­gi­bil­ity age for Medicare, as Boehner and other top Repub­li­cans have demanded. On Tues­day, Obama did not shut the door on Repub­li­can ideas on such enti­tle­ment programs.

“I’m pre­pared to make some tough deci­sions on some of these issues,” Obama said, “but I can’t ask folks who are, you know, mid­dle class seniors who are on Medicare, young peo­ple who are try­ing to get stu­dent loans to go to col­lege, I can’t ask them to sac­ri­fice and not ask any­thing of higher income folks.”

“I’m happy to enter­tain other ideas that the Repub­li­cans may present,” he added in an inter­view with Bloomberg Television.

At the core, the nego­ti­a­tions cen­ter on three key points: whether tax rates for upper income tax­pay­ers should go up, how deeply to cut spend­ing on enti­tle­ments such as Medicare and how to deal with rais­ing the government’s bor­row­ing limit early next year.

White House spokesman Jay Car­ney dis­missed Boehner’s pro­pos­als as “magic beans and fairy dust.”

Boehner coun­tered: “If the pres­i­dent really wants to avoid send­ing the econ­omy over the fis­cal cliff, he has done noth­ing to demon­strate it.”

Tax rates have emerged as one of the most intractable issues, with Obama insist­ing the rates on the top 2 per­cent of earn­ers must go up and Boehner stand­ing stead­fast that they must not.

Boehner, instead, has pro­posed rais­ing $800 bil­lion through unspec­i­fied loop­hole clos­ings and lim­its on tax deductions.

On Tues­day, the pres­i­dent said he would con­sider low­er­ing rates for the top 2 per­cent of earn­ers — next year, not now — as part of a broader tax over­haul effort that would close loop­holes, limit deduc­tions and find other sources of gov­ern­ment rev­enue. “It’s pos­si­ble that we may be able to lower rates by broad­en­ing the base at that point,” Obama said.

On Medicare and Social Secu­rity, the Repub­li­can pro­pos­als would do rel­a­tively lit­tle to curb the deficit over the next decade, but the impact would grow over the longer term.

Rais­ing the Medicare retire­ment age from 65 to 67, for instance, would wring $148 bil­lion from the pro­gram over 10 years, accord­ing to a Con­gres­sional Bud­get Office esti­mate last year, about one-fourth of the sav­ings House Repub­li­cans hope to claim from fed­eral health programs.

Another idea that gained cur­rency dur­ing the Obama-Boehner talks last year would change the annual infla­tion mea­sure used for Social Secu­rity cost-of-living increases and the index­a­tion of tax brack­ets for inflation.

Many econ­o­mists and gov­ern­ment bud­get spe­cial­ists believe the sys­tem is a more accu­rate mea­sure of infla­tion because it takes into account changes in pur­chas­ing behavior

This “chained con­sumer price index” idea makes mod­est cuts to Social Secu­rity ben­e­fits at first — curb­ing pro­gram costs by $112 bil­lion over a decade accord­ing to the 2011 CBO report. But those reduc­tions build up more over time in a fash­ion com­pa­ra­ble to the way com­pound inter­est builds per­sonal savings.

The White House has not fore­closed the idea of address­ing Social Secu­rity cost-of liv­ing changes in a new deal, but it has not embraced it because Obama’s aides argue Social Secu­rity is not con­tribut­ing to the fed­eral deficit.

The stingier infla­tion mea­sure also could raise tax rev­enue by $87 bil­lion over the com­ing decade. Taxes would slowly increase because annual adjust­ments to income tax brack­ets would be smaller, push­ing more peo­ple into higher brackets.

But the alter­na­tive infla­tion mea­sure, while a favorite of bud­get hawks, has run into fierce oppo­si­tion from defend­ers of Social Security.

“I’ve never been a part of that,” said Sen­ate Major­ity Leader Harry Reid, D-Nev., a top Obama ally.

The two sides are also close, at least in the­ory, on curb­ing spend­ing on a host of mis­cel­la­neous pro­grams, as well as new fees. These could lead to higher air­line ticket prices, for exam­ple, an end to Sat­ur­day mail deliv­ery, fewer food stamps and lower farm subsidies.

Repub­li­cans claim they could glean $300 bil­lion from such cuts and fees over 10 years; the White House promises $250 billion.

So far, the pub­lic seems ready to hold Repub­li­cans respon­si­ble if nego­ti­a­tions fail. A new Wash­ing­ton Post-Pew Research Cen­ter poll shows that 53 per­cent say the Repub­li­cans would deserve blame if the nation tips over the fis­cal cliff, and only 27 per­cent of those sur­veyed say Obama would be to blame.

Forty-nine per­cent don’t believe Obama and Con­gress will reach a deal by Jan. 1, whereas 40 per­cent are more optimistic.

Repub­li­cans were quick to say on Tues­day that Boehner’s plan was attract­ing crit­i­cism from the right, par­tic­u­larly from Repub­li­can Sen. Jim DeMint of South Car­olina, a leader of tea party con­ser­v­a­tives, and as such rep­re­sented more of a com­pro­mise than Obama’s stance. DeMint said Boehner’s plan “will destroy Amer­i­can jobs and allow politi­cians in Wash­ing­ton to spend even more.”

Posted by AP News on Dec 4 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.