House Speaker John Boehner offered a “framework” including new revenue to reduce the U.S. budget deficit during talks with President Barack Obama and Congress leaders on averting a year-end fiscal crisis.
Boehner joined White House Press Secretary Jay Carney in describing today’s meeting, the first in a series, as “constructive.” The session featured the same actors, including House Minority Leader Nancy Pelosi and Senate Majority Leader Harry Reid, both Democrats, who failed to reach a $4 trillion debt compromise in mid-2011.
Democrats and Republicans agreed the meeting was more symbolic than substantive. It was “a photo op for the president, so be it,” said Georgia Republican Tom Price.
“I wouldn’t expect a lot of movement,” Peter Orszag, Obama’s former director of the Office of Management and Budget, said today on Bloomberg Television. “That’ll come after Thanksgiving.”
While both sides expressed optimism about prospects for a deal, there’s no evidence they narrowed their differences.
“We’re prepared to put revenue on the table, provided we fix the real problems,” including entitlement costs, said Senate Republican leader Mitch McConnell of Kentucky.
Obama is insisting on higher taxes for top earners and Republicans are refusing to raise rates, leaving negotiators with arithmetically complex and politically fraught choices. Following the talks, a House Republican aide said Boehner’s framework didn’t include increases in marginal tax rates for any group of taxpayers. Obama leaves for Asia tomorrow and Congress is departing Washington until Nov. 26, for its Thanksgiving recess.
The $607 billion fiscal cliff is a combination of tax increases and spending cuts that will take effect in January if Congress doesn’t act. Lawmakers of both parties want to avoid a short-term shock to the economy while making progress on long- term deficit reduction.
Reid, of Nevada, said leaders will meet again with Obama the week after Thanksgiving. “This isn’t something that we’re going to wait until the last minute” to get done, he said.
As the White House talks wrapped up today, U.S. stocks rose. The Standard & Poor’s 500 Index rose as much as 1 percent after leaders emerged from the meeting. The index was up less than 1 percent to 1,355 at 2:46 p.m. in New York after closing yesterday at its lowest level since July 25. The S&P 500 had lost almost 6 percent since the election.
Treasuries rose, reflecting strong demand for U.S. debt worldwide, with 10-year note yields touching a 10-week low. The benchmark 10-year yield fell three basis points, or 0.03 percentage point, to 1.56 percent at 2:24 p.m. New York time, according to Bloomberg Bond Trader prices.
While tax questions will be central in the fiscal talks, the two sides also will consider a down payment on replacing automatic spending cuts should discussions on a broader plan fail, according to congressional aides.
Also in the meeting on the so-called fiscal cliff were Vice President Joe Biden, Treasury Secretary Timothy F. Geithner and White House Chief of Staff Jack Lew.
The president supports higher taxes for top earners mixed with some spending cuts. Republicans want to extend expiring tax cuts for all income levels and are demanding an overhaul in 2013 of entitlement programs and the tax code.
“My hope is that this is going to be the beginning of a fruitful process where we’re able to come to an agreement,” Obama said in his opening remarks today.
While insisting on higher taxes, Obama has shown openness in recent days. He and Geithner said rates must increase without specifying that the top rate must return to the 39.6 percent level in effect when President Bill Clinton left office.
Democrats and some Republicans are beginning to talk publicly about a more modest increase in upper-income tax rates.
One idea would be to raise Obama’s $250,000 income threshold for a tax increase to $500,000 or $1 million and increase the current 35 percent top rate to 37 percent.
“Will John Boehner really blow up a deal for a 1 percent point increase above $1 million?” Orszag said. “The administration has made it clear there has to be at least some increase in marginal tax rates.”
Yesterday Representative Steve King, an Iowa Republican, said Boehner, an Ohio Republican, could probably get a revenue package through the House that curbs deductions and credits for the highest earners and slightly raises rates above the current 35 percent level, as long as it remains short of the 39.6 percent that Obama wants.
“It may not have to be the 39-and-a-half percent number, it could be something less than that,” King said. “If he can squeeze a little more money out of it by closing loopholes I think he’ll make that deal,” he said, referring to the president.
While it “will be tough” to get through the House, King said, “there might be enough pressure could come on John Boehner that more votes come from Democrats than Republicans.”
Several congressional aides have suggested that in the event talks fail, both parties in Congress are discussing fallback plans for $60 billion to $100 billion in deficit reduction to replace automatic spending cuts set to take effect in January.
On taxes, the White House has signaled it is prepared to let all of the George W. Bush-era income tax cuts expire at the end of the year if Republicans refuse to limit a tax-cut extension to income below $25,000 a year for married couples.
“We have to ensure that taxes do not go up on middle-class families,” Obama said today. “That is an agenda that Democrats and Republicans and independents, people all across the country, can share.”
Unlike in mid-2011, when talks between Obama and Boehner collapsed, outside market and political forces are bearing down on lawmakers.
Credit ratings agencies including Moody’s Investors Service have said an additional credit downgrade could occur if talks fail. The nonpartisan Congressional Budget Office has warned of a recession in 2013, and Federal Reserve Chairman Ben Bernanke has said he has few options in his tool box should the U.S. suffer an economic shock.
Following a mid-2011 agreement to lift the nation’s borrowing limit that contained $1.2 trillion in Republican-driven spending cuts, and an election where Democrats picked up seats in the House and Senate, the party says it’s well positioned to secure a debt-reduction package weighted mostly toward revenue.
As they try to find a solution both sides can accept, some moves that ease the math complicate the politics.
Republicans oppose higher rates while the limits on tax breaks they prefer generate opposition from interest groups that rely on them, including nonprofit organizations, the home- building industry and residents of high-tax states.
“To get serious revenue, you have to go after the stuff that’s big,” said Alan Viard, resident scholar at the American Enterprise Institute, which favors limited government. “By definition, the stuff that’s really big are the things that people are really using.”
Obama wants $1.6 trillion in higher taxes for top earners over the next decade, achieved through a combination of limits on breaks and higher tax rates on ordinary income, capital gains, dividends and estates.
The biggest question is how many votes of his Republican rank-and-file Boehner could lose to produce a revenue compromise in the House, where he oversees an “unstable majority” that’s rejected spending bills and last year’s debt ceiling increase, said Virginia Representative Gerry Connolly, a Democrat.