House Speaker John Boehner’s latest offer sheet to the President in the fiscal slope negotiations includes an increase in tax rates on people earning $1 million a year, the first time that the Republican leader has proposed any tax rate hike. The White House, seeking rises on tax rates above $250,000, rejected the offer.
Boehner didn’t solely offer the millionaire’s bracket, he also wants social insurance cuts in exchange:
Boehner also wants to use a new method of calculating benefits for entitlement programs known as “chained CPI,” which would slow the growth of Medicare and other federal health programs and save hundreds of billions over the next decade.
The speaker’s offer would not include extending federal unemployment benefits, and it is unclear how it would address sequestration — the tens of billions in spending cuts scheduled to go into effect for the Pentagon and other federal agencies starting Jan. 2.
And Republicans remain unyielding on agreeing to raise the U.S. debt limit as part of any agreement to avoid the fiscal cliff.
Boehner’s offer on tax rates was a significant move toward Obama’s position. But the proposal, as a whole, still isn’t acceptable to Democrats because of the level of revenue, the changes to entitlement programs that would hit beneficiaries and the absence of an extension for unemployment insurance benefits, according to a source familiar with the talks. The president has also been adamant that any deal include an increase in the debt ceiling.
You mostly see chained CPI relative to Social Security. There isn’t really any such thing as a Medicare cost of living adjustment. So that’s probably just a mistake. The chained CPI would slow the cost of living increase across a range of programs, including Social Security, food stamps, and veteran’s benefits; basically anything with a monetary award that includes a COLA. It’s also a regressive tax increase if applied to tax brackets, about the most stealth tax increase you can muster.
I wouldn’t call this a “significant move” toward the White House position at all. It leaves out unemployment benefits, it leaves out the debt limit, it’s ambiguous at best on the sequester, and it goes not even halfway toward the tax rate increase. That’s why the White House quickly rejected it.
Meanwhile, Boehner is losing support in the other chamber. Senate Republicans are more inclined to have the House pass the tax bill that already made it through the Senate, which would extend the Bush-era tax cuts on only the first $250,000 of income, increase capital gains taxes for high-income earners, patch the alternative minimum tax for 2012 only, and extend three stimulus-era tax breaks for the middle class and working poor, among other measures.
Republicans have some options. The House could pass a bill that includes the extension of the tax rates on the first $250,000 of income, paired with some of their priorities, like extending the estate tax at their preferred levels (with a $5 million threshold for the individual and a 35% marginal rate above that), or keeping the capital gains tax rate at 15% for top earners (the Senate bill increases that to 20%). The media would read that as a concession to Democrats, but Democrats in the Senate would then have to agree to levels on capital gains and estates that they do not prefer.
Of course, the main strategic goal for Republicans is to get the tax issue out of the way, and then fight on the higher ground of the debt limit, in an effort to force bigger safety net and spending concessions, and possibly even individual and corporate tax reform.