Obama makes fresh demands on ‘fiscal cliff’
By Lori Montgomery and Paul Kane,
President Obama offered Republicans a detailed plan Thursday for averting the year-end “fiscal cliff” that calls for $1.6 trillion in new taxes, $50 billion in fresh spending on the economy and an effective end to congressional control over the size of the national debt.
The proposal, delivered to the Capitol by Treasury Secretary Timothy F. Geithner, mirrors previous White House deficit-reduction plans and satisfies Democrats’ demands that negotiations begin on terms dictated by the newly-reelected president.
The offer lacks any concessions to Republicans, most notably on the core issue of where to set tax rates for the wealthiest Americans. After two weeks of talks between the White House and aides to House Speaker John A. Boehner (R-Ohio), it seemed to take Republicans by surprise.
Boehner quickly rejected the proposal and was trying late Thursday to decide how to respond, aides said. After meeting with Geithner for about 45 minutes Thursday morning, the speaker announced his frustration with a negotiation process in which nearly three weeks have lapsed since the election with “no substantive progress.”
“I’m disappointed in where we are, and disappointed in what’s happened over the last couple weeks,” Boehner told reporters. “Going over the fiscal cliff is serious business. And I’m here seriously trying to resolve it. And I would hope the White House would get serious as well.”
Senate Minority Leader Mitch McConnell (R-Ky.) called the proposal a “step backward” from compromise — with time running out for policymakers to agree on a plan to prevent more than $500 billion in tax increases and spending cuts that could rattle the economy.
“This is a real problem. Every day, the delay brings us one step closer to the fiscal cliff that we simply must avoid,” McConnell said.
Democratic leaders, meanwhile, were triumphant after receiving similar briefings from Geithner and White House legislative liaison Rob Nabors. Top Democrats have for months insisted that an Obama victory would entitle them to demand far more in new taxes than Republicans have been willing to consider, to seek new measures to boost economic growth, and to avoid major cuts to entitlement programs, such as Social Security and Medicare.
“Democrats are on the same page,” said Senate Majority Leader Harry M. Reid (D-Nev.). “The president has made his proposal; we need a proposal from them.”
Although the White House offer seemed to startle Republicans, it contains little that would be unfamiliar to anyone following the president’s recent public statements. The exception was his proposal on the federal debt limit. GOP aides said Obama is seeking to permanently enact procedures that were temporarily adopted in the summer of 2011 that allow the White House to unilaterally increase the debt ceiling unless two-thirds of lawmakers disapprove.
That process, initially proposed by McConnell, was not intended to become permanent. By trying to make it so, Obama is seeking to avoid another damaging battle over the debt ceiling that would again risk a national default. However, this change would also deprive Congress of its historic authority over federal borrowing.
Unless Congress acts on the fiscal cliff, taxes will rise significantly in January for nearly 90 percent of Americans, and about $65 billion will be sliced out of the Pentagon and other agency budgets, probably triggering a recession. Simply canceling the changes, however, risks undermining confidence in the nation’s ability to manage its rising debt.
Financial markets, which in recent weeks have been optimistic about the prospects of a deal to replace the cliff with a less traumatic deficit-reduction plan, were whipsawed by Thursday’s declarations. The Dow Jones Industrial Average took a nose-dive during Boehner’s 11:30 a.m. news conference, dropping nearly 60 points in eight minutes. It closed up nearly 37 points, or 0.3 percent.
Obama’s offer comes nearly two weeks after Boehner and other congressional leaders opened talks at the White House. Since then, administration officials have negotiated directly with Boehner’s staff. Senior Republican aides said relations deteriorated in recent days, prompting Boehner to call the White House on Wednesday evening to request to speak with the president.
Boehner’s aides declined to comment on the 28-minute call, but Republicans in the Capitol said Obama dominated the conversation and was forceful in demanding that Boehner pass legislation to maintain tax rates for the middle class and let them rise on income over $250,000 a year.
Boehner called the discussion “frank and direct” and said he remains “hopeful that productive conversations can be had in the days ahead.” But both sides confirmed that no additional meetings have been planned but emphasized that talks will continue.
Obama’s proposal, as outlined by Republicans, would purportedly trim the debt by about $4 trillion over the next decade, in part through spending cuts already in force and savings from ending the wars in Iraq and Afghanistan. Also included are $1.6 trillion in taxes and about $400 billion in savings from changes to federal health and entitlement programs.
With regard to taxes, the White House wants about $1 trillion in new revenue from the year-end expiration of the George W. Bush-era tax cuts on income over $250,000. Obama also is demanding that dividends be taxed as normal income and that the estate tax be raised to 45 percent and expanded to cover estates worth as little as $3.5 million — policies for which the Democratic Senate was unable to win approval earlier this year.
The rest of the tax increases and the entitlement savings would come next year, through congressional revisions to the tax code and retirement programs.
The White House proposal would delay automatic cuts at federal agencies for one year while funding other Democratic priorities, including $50 billion for a new infrastructure bank and additional benefits for unemployed workers.
The plan also calls for extending the payroll tax cut, or adopting a similar tax break for working families, in addition to extending income tax cuts for the vast majority of taxpayers.
“Right now, the only thing preventing us from reaching a deal that averts the fiscal cliff and avoids a tax hike on 98 percent of Americans is the refusal of congressional Republicans to ask the very wealthiest individuals to pay higher tax rates,” White House spokeswoman Amy Brundage said. “We remain willing to do tough things to compromise, and it’s time for Republicans in Washington to join the chorus of other voices . . . who support a balanced approach that asks more from the wealthiest Americans.”