Boehner's New Offer on Taxes Could Help Reach a Deal
House Speaker John A. Boehner’s offer Friday to allow tax rates to rise on income over $1 million has already changed the terms of negotiations to avert a fiscal crisis in January, and both sides on Sunday expressed new optimism that a deal could be reached this week.
In a phone call with President Obama, the speaker – who had resolutely opposed allowing income tax rates to rise for anyone – instead spoke in terms of preventing taxes from rising on everyone with incomes below $1 million a year. He also said he could accept an agreement that would raise $1 trillion in new revenues over 10 years if the president committed to significant savings from benefit programs like Medicare, according to Republican Congressional aides familiar with the talks.
That is up from the $800 billion in Mr. Boehner’s initial offer. Mr. Obama has lowered his revenue demand to $1.4 trillion over 10 years from $1.6 trillion.
With Friday’s exchange, the president and the speaker put aside a philosophical argument over whether higher tax rates would hurt “small businesses” and “job creators” and began to focus on the price. While Republicans close to the talks said a deal is not imminent, they said it is close.
“We are hopeful,” one senior aide said Sunday.
Price does matter, however. The president and the speaker are $400 billion apart on the amount their proposals would instruct Congress’s tax writing committees to raise when the hard work of overhauling the tax code begins next year.
The sides are farther apart on the amount of spending that should be cut. The White House has said it wants the relevant Congressional committees to find $400 billion in savings from federal health care programs over 10 years and about $200 billion in other cuts. Republicans want $600 billion in savings from health care programs like Medicare, Medicaid and the president’s health care law over 10 years, and $600 billion in other cuts, none of them detailed yet.
Leadership aides said this weekend that the speaker wants the president to agree to move the government to a different way of calculating inflation that would slow the growth rate of many government programs, chiefly Social Security, by slightly lowering cost-of-living adjustments. It would also raise additional revenues because tax brackets, which rise each year with inflation, would rise more slowly. Increases in income then would more quickly push people into higher tax brackets.
But the aides said the speaker is willing to drop discussions of an immediate raise in eligibility age for Medicare, from 65 to 67, recognizing the fierce resistance to that from Democrats.
Mr. Boehner put together his proposal on tax rates as a counterargument to a growing number of Republicans who have publicly said the party should quickly pass legislation to extend expiring tax rates for income below $250,000. Advocates of that position said it would keep taxes from going up Jan. 1 for 98 percent of American households.
But Mr. Boehner argued that the proposal – still pressed by Mr. Obama – would allow the top two income tax rates (35 percent and 33 percent) to rise to 39.6 percent and 36 percent, capturing people who could arguably call themselves upper middle class. By pressing for a cutoff of $1 million of income, only a handful of the super-rich would be affected, and virtually no legitimate small businesses would feel the hit.
The big remaining question is price. The president’s plan, which would also include higher tax rates on capital gains, dividends and inherited estates, would raise $960 billion over 10 years. Mr. Boehner’s would raise perhaps around $300 billion. Republican aides said that would be enough to justify canceling across-the-board spending cuts that take effect Jan. 2, and to allow Congress to get to work on a tax-code overhaul that would generate the additional revenue and create a whole new set of tax rates, beginning in 2014 if successful.
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