Dec. 17 (Bloomberg) -- President Barack Obama is considering a possible budget concession on Social Security cost-of-living increases after House Speaker John Boehner dropped his opposition to raising tax rates for some top earners, said two people familiar with the talks.
Obama and Boehner met for about 45 minutes at the White House today with two weeks remaining to avert more than $600 billion in spending cuts and tax increases set to start in January. Treasury Secretary Timothy Geithner also attended the meeting, according to a Treasury Department statement. Obama is seeking an income-tax rate increase for top earners while Boehner wants to cut spending on entitlement programs.
Senate Majority Leader Harry Reid, a Nevada Democrat, said today it appears the chamber will need to reconvene Dec. 26 to work on the budget.
Switching the inflation yardstick to the so-called chained consumer price index would reduce Social Security cost-of-living benefit increases and generate fresh revenue because it also would reset income-tax brackets.
A Republican congressional aide said Boehner is pressing harder for the CPI revision than for other entitlement changes, such as an increase in the Medicare eligibility age. Some Democrats in Congress say they’re willing to make the change.
“We want to preserve these programs for the long run,” Democratic Senator Tom Carper of Delaware said last week. “We need a great compromise; Democrats need to compromise on entitlement reform that doesn’t savage older people or poor people.”
White House spokesman Jay Carney said, “I’m not going to get into specific policy proposals,” when asked today about using chained CPI. He added that Obama is “prepared to make tough choices.”
Late last week, Obama rejected a Dec. 14 offer by Boehner to raise tax rates on household income exceeding $1 million a year and lift the federal debt ceiling in exchange for containing entitlement program costs.
Democrats want Boehner to lower that threshold to somewhere below $500,000 a year in exchange for agreeing to a version of the chained CPI, said a Democratic congressional aide who sought anonymity. The aide didn’t give a specific level.
While Reid has declared Social Security off the table in any deal to avert the so-called fiscal cliff of tax increases and spending cuts, the CPI revision has been a centerpiece of most of the major bipartisan efforts to trim the debt.
That includes Obama’s failed negotiations with Boehner in 2011 over a grand bargain to trim the deficit, as well as the proposal by the co-chairmen of the president’s 2010 debt panel.
The key for some Democrats is whether a change can be made in a way that would protect low-income and other vulnerable groups of senior citizens.
“We adopted measures to protect low-income people, and it’s entirely possible to do,” said Senator Kent Conrad, the Senate Budget Committee chairman and a North Dakota Democrat who served on the deficit commission. Having protection for low-income seniors “would be critical to passing the Senate,” he said.
“This is not a fringe idea,” said Jared Bernstein, a former member of Obama’s economic team and a senior fellow at the Center on Budget and Policy Priorities. The Democratic-aligned group wrote a February paper advocating the chained CPI under “certain conditions.”
Obama’s commission also recommended instituting a phased-in 5 percent increase in benefits for people who had received Social Security for 20 years, as well as a minimum benefit for lower-income beneficiaries. Another major concern for Democrats and Republicans will be protecting disabled veterans.
That could be addressed by enhancing Social Security disability benefits or increasing credits for low-income taxpayers, according to a paper released this month by a panel of the Committee for a Responsible Federal Budget. The nonpartisan policy group advances bipartisan debt reduction ideas.
The paper said that switching to the chained CPI would save more than $235 billion over the next decade if implemented beginning in 2014. Advocates say the government’s current measure of inflation overstates how quickly prices rise.
Changing to the new inflation yardstick in a deficit deal is strongly opposed by the AARP senior citizens lobby and labor unions.
Some Democratic leaders including Senator Dick Durbin of Illinois haven’t ruled out the idea, without endorsing it. Obama also didn’t close the door in an interview earlier this month with Bloomberg News.
The change would bring in fresh revenue to the government because annual increases in the thresholds for income-tax brackets would be smaller under the different cost-of-living measure than under the current system. As a result, more income would be pushed into higher brackets and subject to higher tax rates.
Publicly, Obama has said he wants higher income tax rates for income exceeding $250,000. Boehner’s offer on tax rates marked movement because he has long opposed increasing tax rates for any income level.
In his Dec. 14 offer, Boehner said he would accept $1 trillion in revenue, up from $800 billion, according to a person familiar with the talks who requested anonymity when discussing the negotiations. That person said Boehner’s offer would pair the revenue increase with equal cuts to entitlement programs.
Obama last week reduced his demand for new revenue to $1.4 trillion from $1.6 trillion.
Some Democratic Senate leaders had indicated last week that once Boehner showed a willingness to raise income tax rates for top earners, Democrats would be open to negotiating changes in entitlement programs.
“We’re waiting for them to go to the top rate and that opens the door to everything,” said Senator Chuck Schumer of New York, the Senate’s third-ranking Democrat, said last week.
Today’s meeting was Obama and Boehner’s third face-to-face meeting on the budget this month, after one on Dec. 9 and another on Dec. 13. The two are still far from a deal.
The anti-tax Club for Growth urged Boehner today not to agree to a debt-limit increase.
“Raising the debt ceiling would give away one of the best tools the Republicans have in their arsenal to force real reform,” the organization’s president, Chris Chocola, said in an e-mailed statement.
Obama is pressing for unilateral authority to raise the federal debt ceiling, while Boehner’s latest offer stipulates that “any debt limit increase would require cuts and reforms of a greater amount,” said Boehner spokesman Michael Steel. Cuts of $1 trillion, as Boehner is seeking, would be about enough to cover a one-year debt limit increase.
The Congressional Budget Office has said that a failure to avert the tax increases and spending cuts would probably lead to a recession in the first half of 2013. Republicans say their leverage to force spending cuts could increase in 2013 as the need approaches to increase the federal debt limit as early as mid-February.
U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the highest level since October. The S&P gained 1.2 percent to 1,430.45 at 4 p.m. in New York. The yield on the benchmark 10-year Treasury note increased six basis points, or 0.06 percentage point, to 1.76 percent, the highest level since Nov. 2.
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