May 21, 2013
Boehner opens door to tax hikes, shifts US fiscal cliff talks
US House of Representatives Speaker John Boehner's offer to accept a tax rate increase for the wealthiest Americans knocks down a key Republican road block to a deal resolving the year-end "fiscal cliff."
The question now boils down to what President Barack Obama offers in return. Such major questions, still unanswered so close to the end of the year suggest, however, that no spending and tax agreement is imminent.
A source familiar with the Obama-Boehner talks confirmed that Boehner proposed extending low tax rates for everyone who has less than $1 million in net annual income, meaning tax rates would rise on all above that line.
Under current law, the 36 percent top tax rate is scheduled to expire on Jan. 1, and would automatically go to 39.6 percent. Boehner's proposal would allow that rate to rise as scheduled at a threshold of $1 million - putting it back to where it was during the Clinton administration.
The White House has not accepted the proposal and the source could not confirm any additional talks were held on Sunday between Obama and Boehner.
With just over two weeks before the fiscal cliff's $600 billion in automatic tax hikes and spending cuts are triggered, threatening a new recession, there is little time to craft a comprehensive deal that will satisfy both Democrats and Republicans.
Until the latest Republican offer, made on Friday, Boehner had insisted on extending all of the Bush era's lower tax rates, resisting Obama's demand to let the marginal rates rise on income above $250,000. A rising chorus of business executives also had urged Republicans to agree to this.
Some lawmakers and congressional aides had predicted that Republicans, once serious negotiations began, might try to raise the $250,000 threshold, say to $500,000 or $1 million. They also speculated that Republicans, if forced into a tax rate hike on the upper-income groups, might seek a smaller increase, say to around 37 percent.
Although the White House has not accepted Boehner's gambit, it could push negotiations away from entrenched, ideological positions.
"Boehner has now accepted the premise of higher rates. So now we're just arguing over details. I think it's a significant step," said Greg Valliere, chief political strategist at Potomac Research Group.
A framework deal spelling out tax revenue and spending cut targets to be finalized in the new year could be possible, Valliere said.
"Boehner's offer to allow tax rates to go up for taxpayers earning over $1 million fundamentally transforms fiscal cliff negotiations," added Sean West, US policy analyst at Eurasia Group, a political risk consultancy.
In a note to clients, West wrote that it signals, significantly, that Boehner ultimately believes a deal to avoid the cliff is still possible.
"The political burden is now shifted back to the president, who must be willing to take on his party in order to get a deal Boehner can ultimately pass. We do not think the president will overreach: Obama will work with Boehner to get to a deal."
There are still several critical elements to a deal besides a tax rate increase on the wealthy, including Republican demands to cut spending on social programs.
Changes to the expensive Medicare and Medicaid health care programs for the elderly and the poor could be central to any deal, which must also include an increase in the federal debt limit needed by the end of February.