Obama, Boehner Dance on Fiscal Cliff
President Barack Obama and House Speaker John Boehner must enjoy the art of haggling. How else to explain the painfully long, drawn-out negotiations over a fiscal-cliff deal whose parameters are by now well-known?
The question at this point is largely one of math -- which income levels will see their tax rates rise (not whether they'll go up at all) and how much spending on entitlement and other programs will come down.
It's not that simple, of course. Both Obama and Boehner need to stand their ground for as long as possible to eke out concessions from the other side and convince their respective caucuses of their resolve. When they ultimately agree on a deal, both sides want it to seem like compromise, not caving.
That's the logic behind Boehner's just-announced backup "plan B" budget measure, which he says the House could vote on sometime this week (and would never pass the Senate or be signed by Obama). The proposal, which mirrors Boehner's latest offer to Obama, would increase taxes on those earning above $1 million and extend current income-tax rates for everyone below that cutoff. It was rushed out just hours after Republicans including Senator Bob Corker poured cold water on reports that a deal to avert the $600 billion in spending cuts and tax increases was within reach.
Boehner says he still hopes to reach a broader budget deal with the president but is offering a plan B "to protect American taxpayers making $1 million or less" in the event lawmakers can't reach a deal to prevent across-the-board tax increases slated to take effect next year.
Yet agreement has never been more within reach than it is at this moment. The two sides are now haggling over price, not ideology -- an important evolution that at times seemed unattainable. Both parties have given ground -- with Boehner agreeing to increase taxes on the wealthiest and Obama dropping his $250,000 income threshold for higher rates along with his insistence for a payroll tax-cut extension (although he still wants other forms of stimulus, like extended unemployment insurance).
Boehner now says he'll accept $1 trillion in new revenue over the next decade with $1 trillion in spending cuts. Obama's latest offer would raise $1.2 trillion in new revenue over 10 years and cut spending by $1.22 trillion.
Boehner's offer would hike taxes on those earning more than $1 million (raising about $400 billion), and place limits on tax deductions and enact other tax-code reforms to make up the remainder. Obama's $1.2 trillion would come from raising taxes on those earning more than $400,000 and set the top tax rates on dividends and capital gains at 20 percent. On paper, the differences seem surmountable.
But, this being Washington and the budget being involved, nothing is ever easily resolved. Boehner has rejected Obama's offer, saying it actually raises $1.3 trillion in taxes and cuts spending by just $850 billion. The difference stems from what the Republican Party considers genuine cuts: The White House is proposing about $800 billion in cuts to programs and counting about $122 billion in reduced spending that will result from using a new measure of inflation for Social Security benefits. Another $300 billion in savings comes from lower interest costs on the national debt. The difference on the tax side stems from that inflation calculation change, which could push taxpayers into higher income brackets more quickly. Republicans want those $1 trillion in cuts to slice more deeply into the federal machinery.
And big questions surround the $16.4 trillion debt limit. The White House wants a big enough increase to last two years. Republicans have given mixed signals about their intentions but suggest they won't agree to an increase without dollar-for-dollar spending cuts.
Issues remain, but the framework for a deal exists. Washington has spent far too long haggling and posturing. It's time to sit down and flesh out the exact details of an agreement. If Obama and Boehner get such a kick out of bartering, they can celebrate a fiscal-cliff deal with a joint shopping trip to Turkey.
Read more breaking commentary from Bloomberg View at the Ticker.