Talks to avert the fiscal cliff suffered a "major setback" Sunday, Democrats said, when Republicans demanded significant cuts to Social Security benefits in exchange for President Obama's request to extend emergency unemployment benefits and cancel deep cuts to the Pentagon and other agency budgets.
Senate Minority Leader Mitch McConnell has now appealed directly to Vice President Biden to try to break the impasse a last ditch deal to avoid the fiscal cliff, as Senate Majority Leader Harry M. Reid steps back from talks.
Reid was "shocked and disappointed" by the new GOP demand, said a Democratic aide close to the talks, who described the request as a "poison pill." While the two sides were still talking, said the aide, who spoke on condition of anonymity to discuss private negotiations, "we view this as a serious setback. "
The development came after a long weekend of negotiations during which the two sides had been making progress.
The aide said Democrats had shown flexibility on the major sticking points involving taxes. They had not ruled out maintaining the tax on inherited estates at the current low rate, as Republicans prefer. And they had been open to a deal that would allow taxes to rise on many fewer wealthy households than President Obama had proposed. Republicans were seeking tax increases only on income higher than $400,000 or $500,000 a year, while Obama wanted to set the threshold at $250,000 a year.
But Obama was pressing for $30 billion in new spending to keep unemployment benefits flowing to the long-term unemployed, and he wanted to postpone roughly $100 billion in automatic spending cuts set to hit agency budgets next months. In exchange for those items,
Senate Minority Leader Mitch McConnell (R-Ky.) insisted Sunday that Democrats put cuts to Social Security benefits on the table, noting that Obama had offered to do so as part of the big deficit-reduction package he had been negotiating with House Speaker John A. Boehner (R-Ohio.)
Most, if not all, of the GOP proposals sought to change the measure of inflation for Social Security, senior Republican aides said, adding that Democrats had not indicated until Sunday that it was a deal-breaker.
"One of the proposals we made was something called 'Chained CPI' which sounds real technical, but basically makes an adjustment in terms of how inflation is calculated for Social Security," Obama said on the show, which was taped Saturday. "Highly unpopular among Democrats, not something supported by AARP, but in pursuit of strengthening Social Security for the long-term, I'm willing to make those decisions."
Applying chained CPI to Social Security would result in smaller annual cost-of-living adjustments. It is adamantly opposed by many Democrats, who say they would only go along with the idea in exchange for a big deficit-reduction deal that included at least $1.2 trillion in new revenue over the next decade. The deal under discussion Sunday would raise no more than $800 billion.
It was not immediately clear how the setback would affect the talks, but the aide said negotiators were unlikely to make additional progress before Senate leaders are scheduled to brief their respective caucuses around 3 p.m.