Story Summary

Fiscal Cliff

Lawmakers are trying to negotiate a last-minute deal aimed at heading off a year-end combination of spending cuts and tax increases that could trigger a new recession.

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obamaWASHINGTON (CNN) — Let the endgames begin.

After a Christmas holiday, President Barack Obama returned to Washington from Hawaii and the U.S. Senate reconvened Thursday as the deadline approached for going over the fiscal cliff of automatic tax hikes and spending cuts.

However, the House remained on Christmas break, with members warned they could be called back on 48 hours’ notice if needed.

Hopes for a so-called grand bargain that would address the nation’s chronic federal deficits and debt appeared dashed for now, with four days remaining to reach agreement on a smaller plan that would avoid the harshest effects of the fiscal cliff’s tax increases and slashed spending.

With House Republicans unable to resolve the impasse, the focus shifted to the Democratic majority in the Senate to come up with a way forward that could pass the House and get signed into law by Obama.

In the Senate, Majority Leader Harry Reid of Nevada expressed doubt that enough time remained to reach an agreement, especially with the House at least 48 hours from coming back.

“I don’t know, time wise, how it can happen now,” he said as he opened the Senate’s first session back from the holiday.

The White House said Thursday that the president spoke with all four congressional leaders before leaving Hawaii on Wednesday. Spokesmen for Republican leaders of the House and Senate made clear, though, that Reid and Senate Democrats needed to offer a proposal now.

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geithner-picWASHINGTON (CNN) — Government borrowing will hit the debt ceiling on Monday, Treasury Secretary Tim Geithner said in a letter to Congress Wednesday.

As a result, the Treasury Department will soon start using what it calls “extraordinary measures” to prevent government borrowing from exceeding the legal limit.

Such measures include suspending the reinvestment of federal workers’ retirement account contributions in short-term government bonds.

On Monday, debt subject to the limit was just $95 billion below the $16.394 trillion debt ceiling.

All told, the extraordinary measures can create about $200 billion of headroom under the limit — normally about two months worth of borrowing.

But it’s unclear how much time the extraordinary measures can buy now because there are so many unanswered questions about tax and spending policies, Geithner said, referring to the lack of any resolution of the fiscal cliff.

“If left unresolved, the expiring tax provisions and automatic spending cuts, as well as the attendant delays in filing of tax returns, would have the effect of adding some additional time to the duration of the extraordinary measures,” he wrote.

After the extraordinary measures run out, Treasury won’t be able to pay all the country’s bills in full and on time. At that point, the United States will run the very real risk that it could default on some of its obligations.

Geithner has predicted for months that the country would hit the debt ceiling by the end of December.

But Congress, first consumed with the 2012 elections and now with the fiscal cliff, has made little effort to raise the ceiling.

Now there’s a good chance the debt ceiling issue won’t be resolved until the 11th hour and only after an ugly fight.

Indeed, some Republicans have been saying they view the debt ceiling as leverage in budget negotiations in early 2013 in their bid to secure spending cuts.

Before fiscal cliff legislation died last week, House Speaker John Boehner offered President Obama a one-year debt ceiling increase, but only on the condition that spending cuts and reforms exceeded the size of any increase.

The last standoff over the debt ceiling in 2011 ended badly, with Congress raising it only at the last minute. The debacle led to the downgrade of the country’s AAA credit rating and caused tumult in the markets.

The Government Accountability Office has long called for Congress to come up with a smarter way to handle the debt ceiling.

“Congress should consider ways to better link decisions about the debt limit with decisions about spending and revenue to avoid potential disruptions to the Treasury market and to help inform the fiscal policy debate in a timely way,” the GAO said in a recent report.

Meanwhile, a variety of fiscal and monetary experts have called for the debt ceiling to be abolished altogether.

WASHINGTON (CNN) — President Barack Obama is ending his Hawaiian vacation Wednesday to make a late-hour bid to reach a fiscal-cliff deal before the year ends.

He will leave Honolulu Wednesday night and should be back in Washington on Thursday, the White House said. First lady Michelle Obama and their daughters will remain in Hawaii.

House and Senate members are expected to reconvene Thursday.

Obama and Republicans have been at loggerheads over how to prevent automatic tax increases for everyone and deep spending cuts that will be triggered in the new year without an agreement.

With neither side showing any sign of blinking, the battlefield will probably shift to the Senate this week after GOP disarray in the House stymied any progress before Christmas.

According to multiple Democratic and Republican sources, no weekend conversations occurred between the White House and Senate leaders from either party or their aides.

The main dispute continues to be over taxes, specifically the demand by Obama and Democrats to extend most of the tax cuts passed under President George W.

Bush while allowing higher rates of the 1990s to return on top income brackets.

Republicans oppose any kind of increase in tax rates, and House Speaker John Boehner suffered the political indignity last week of offering a compromise that his colleagues refused to support.

WASHINGTON (CNN) — Call it a bigger, bolder version of the deadline-driven congressional stalemates over taxes and spending that have come to define Washington dysfunction of the past two years.

The latest edition of political “blinksmanship” pits President Barack Obama and Democrats against Speaker John Boehner and Republicans on how to avoid the fiscal cliff — automatic tax increases for everyone and deep spending cuts including the military that will be triggered in the new year without an agreement.

While the focus now is on a possible agreement in coming days or weeks, anti-tax crusader Grover Norquist told CNN on Monday that the nation should gird for long-range battle.

“This is a long fight. It’s four years of a fight. It’s not one week of a fight,” said Norquist, who has threatened to mount primary challenges against Republicans who violate a pledge they signed at his behest against ever voting for a tax increase.

With neither side showing any sign of blinking, however, the battlefield will probably shift to the Senate this week after GOP disarray in the House stymied any progress before Christmas.

Congress and the president are taking a holiday break, with plans to return to work Thursday to try to find a deal in the final five days of the year.

Economists warn that failing to avoid the fiscal cliff could spark recession, and stocks opened lower Monday amid no sign of the Washington impasse ending.

According to multiple Democratic and Republican sources, no weekend conversations occurred between the White House and Senate leaders from either party or their aides.

The main dispute continues to be over taxes, specifically the demand by Obama and Democrats to extend most of the tax cuts passed under President George W. Bush while allowing higher rates of the 1990s to return on top income brackets.

Republicans oppose any kind of increase in tax rates, and Boehner suffered the political indignity last week of offering a compromise that his colleagues refused to support.

While both sides say they want to avoid the fiscal cliff, signs are emerging that a deal would come after the new year to blunt the harshest impacts. Under that scenario, legislators would vote to lower taxes from the higher rates that will go into effect in January when the Bush cuts expire, with the new top rates staying intact.

The sources described to CNN three possible options for moving ahead, all resting with Senate Majority Leader Harry Reid of Nevada.

One would be to amend a House measure passed in July that extends the Bush tax cuts for everyone. The changes would return to higher rates on top brackets, which Obama defines as family income up to $250,000, and also could include the president’s call to extend unemployment benefits and some of the fiscal cliff spending cuts.

A second possibility would involve a Senate measure that Democrats passed in July with no Republican support. It calls for the Obama plan of extending the current tax cuts on family income up to $250,000.

However, the Senate version has a constitutional problem because by law, measures that raise revenue must originate in the House. Boehner said Friday that the Senate plan has a “blue slip” problem, which refers to an objection that it is unconstitutional and therefore remains lodged in the Senate.

While one Democratic source said the Senate version could get taken up in the House if Senate Minority Leader Mitch McConnell or Boehner don’t raise a blue slip objection, Republican sources rejected that scenario.

Reid also could take a different revenue-raising bill from the House and rewrite it as a tax and spending measure to address fiscal cliff issues, the sources explained.

With Republicans holding filibuster power in the Democratic-majority Senate, at least seven GOP senators would have to join Democrats on such a plan before the end of the year. With McConnell up for re-election in 2014, he is considered unlikely to risk angering the party’s conservative base by supporting a compromise or allowing one to pass on a simple majority vote that would need no GOP backing, sources said.

In the new Senate that will convene in early January, the number of Republicans needed to pass a deal would be five because of Democratic gains in November, when Obama won re-election.

According to a Senate Republican leadership aide, Republicans reject Obama’s $250,000 threshold for tax cut extensions. Meanwhile, a Senate Democratic leadership aide lamented McConnell’s apparent unwillingness to negotiate.

“We’re going to be here New Year’s Eve,” retiring Sen. Joe Lieberman said Sunday on CNN’s “State of the Union,” adding that it was likely the nation would go over the fiscal cliff.

Failing to meet the year-end deadline on striking a deal would amount to “the most colossal, consequential act of congressional irresponsibility in a long time,” said Lieberman, an independent from Connecticut who caucuses with Democrats. “Maybe ever in American history, because of the impact it will have on almost every American.”

However, Norquist called the situation part of a longer process.

“This is not a fight that begins and ends the first week of January,” he said, predicting “a regular fight” when Congress needs to authorize more government spending and raise the federal debt ceiling in coming months.

“There the Republicans have a lot of clout because they can say we’ll let you run the government for the next month, but you’ve got to make these reforms,” he explained.

Obama spoke separately Friday with Boehner and Reid to try to salvage a fiscal cliff deal by the end of year, then delivered a previously unscheduled statement to reporters at the White House.

He acknowledged what has become obvious: The broader deficit reduction deal he seeks will probably come in stages, rather than in the so-called grand bargain he and Boehner have been trying to negotiate.

In particular, Obama called for Congress to come back after Christmas and work with him on a limited agreement to prevent tax hikes on the middle class, extend unemployment insurance and set a framework for future deficit reduction steps.

Boehner’s spokesman said the speaker will be “ready to find a solution that can pass both houses of Congress” when he returns to Washington, as now planned for Thursday.

The GOP opposition to any kind of tax rate increase has stalled deficit negotiations for two years and led to unusual political drama, such as McConnell recently filibustering a proposal he introduced and Thursday night’s rebuff by House Republicans of an alternative tax plan pushed by Boehner, their leader.

Boehner said at a news conference Friday that his Republican colleagues refused to back his plan, which would have extended all tax cuts except for income of more than $1 million, because of fears of being blamed for a tax increase.

The negotiations with Obama on a broad deficit reduction agreement hit an impasse last week when both sides offered their “bottom line” positions, Boehner said. In what was considered as progress just a week ago, the president and speaker made major concessions but remained a few hundred billion dollars apart.

Reid and other Senate Democrats say House Republicans must accept that agreement will require support from legislators in both parties. He insisted that the Senate-passed plan with Obama’s $250,000 threshold, which polls show is strongly supported by the public, would pass the House if Boehner would allow a vote.

Some House Republicans have said they would join Democrats in supporting the president’s proposal in hopes of moving past the volatile issue to focus on the spending cuts and entitlement reforms they seek.

The possibility of a fiscal cliff was set in motion over the past two years as a way to force action on mounting government debt.

Now, legislators risk looking politically cynical by seeking to weaken the measures enacted to try to force them to confront tough questions regarding deficit reduction, such as reforms to popular entitlement programs such as Social Security, Medicare and Medicaid.

Polling has consistently shown most Americans back the president, who insists wealthy Americans must pay more, rather than Boehner and his Republican colleagues, who have balked at tax rate hikes and demanded spending cuts and entitlement program reforms.

A new CNN/ORC International survey last week found that just over half of respondents believe Republicans should give up more in any solution and consider the party’s policies too extreme.

The two sides seemingly had made progress early last week on forging a $2 trillion deficit reduction deal that included new revenue sought by Obama and spending cuts and entitlement changes desired by Boehner.

The president’s latest offer set $400,000 as the income threshold for a tax rate increase, up from his original plan of $250,000. It also included a new formula for the consumer price index applied to some entitlement benefits, much to the chagrin of liberals.

Called chained CPI, the new formula includes assumptions on consumer habits in response to rising prices, such as seeking cheaper alternatives, and would result in smaller benefit increases in future years.

Statistics supplied by opponents say the change would mean Social Security recipients would get $6,000 less in benefits over the first 15 years of chained CPI.

Liberal groups sought to mount a pressure campaign against including the chained CPI after news emerged this week that Obama was willing to include it, calling the plan a betrayal of senior citizens who had contributed throughout their lives for their benefits.

obamaWASHINGTON — President Barack Obama spoke separately Friday with Speaker John Boehner and the top Senate Democrat to try to salvage a fiscal cliff deal by the end of year, after Republican disarray in the U.S. House put the negotiations in limbo.

In a previously unscheduled statement to reporters, Obama outlined a possible agreement that he said would include protecting middle-class Americans from a tax hike, extending unemployment benefits and setting a framework for future deficit reduction steps.

He called on Congress to pass the agreement after a Christmas break so he can sign it before the end of the year, when the fiscal cliff arrives in the form of automatic tax increases and deep spending cuts.

“Laws can only pass with support from Democrats and Republicans,” Obama said in urging both sides to compromise.

The president planned to fly with his family to Hawaii on Friday night for the holiday and return to Washington after Christmas, while House and Senate members also headed home with plans to return on December 27 if needed.

Boehner’s spokesman said the speaker will be “ready to find a solution that can pass both houses of Congress” when he returns to Washington.

While congressional leaders continued to bicker Friday over the next step, the president’s phone discussion with Boehner and a White House meeting with Senate Majority Leader Harry Reid signaled an attempt to provide the nation and investors with hope that an agreement can be reached.

An aide to Reid said the short-term proposal to avoid the fiscal cliff should include extending tax cuts for middle-class families and unemployment insurance while delaying the automatic spending cuts set to take effect in the new year.

Obama acknowledged what had become obvious: the broader deficit reduction deal he seeks will likely come in stages, rather than in the so-called grand bargain he and Boehner have been negotiating.

The main issue of disagreement continued to be taxes, specifically whether rates should go up on top income brackets for the wealthiest Americans as part of an agreement to reduce the nation’s chronic federal deficits and debt.

Without a deal, the fiscal cliff could trigger a recession, economists warn. Stocks closed down sharply on Friday over the latest impasse in the deficit talks, a sign of investor fears of a slowdown as the nation slowly continued to emerge from recession.

Earlier Friday, Reid called for House Republicans to quickly approve a Senate plan championed by Obama that would extend tax cuts for family income up to $250,000 while allowing rates to return to higher levels of the 1990s above that threshold.

His Republican counterpart, Sen. Mitch McConnell of Kentucky, responded that the Senate should instead take up a House Republican measure extending the tax cuts for everyone as a temporary move before negotiations next year on broader tax reform.

The GOP revulsion over any kind of tax rate increase has stymied deficit negotiations for two years and led to unusual political drama, such as McConnell recently filibustering his own proposal and Thursday night’s rebuff by House Republicans of an alternative tax plan pushed by Boehner, their leader.

Boehner said at a news conference Friday that his Republican colleagues refused to back his plan, which would have extended all tax cuts except for income over $1 million, because of fears of being blamed for a tax increase.

“They weren’t taking it out on me,” he said. “They were dealing with the perception that somebody might accuse them of raising taxes.”

The lack of backing by his own caucus was a political blow to Boehner and raised more questions than answers about what happens next in the tough negotiations with Obama on either a broad deficit reduction agreement or a smaller step to avoid the fiscal cliff.

A senior Democratic Senate source said scenarios under consideration by the party include trying to work out short-term or comprehensive agreements now, or going into next year — and over the fiscal cliff — without a deal to quickly pass a compromise plan in the new Congress that convenes on January 3.

Waiting until next year would make the vote a tax cut from the automatic higher rates that will take effect under the fiscal cliff, instead of the current situation of extending some cuts and having top rates go up, the source noted.

In addition, Democrats will have two more seats in the new Senate and a stronger House minority, as well as increased pressure on Republicans to keep taxes low on middle class Americans, according to the source.

Trying to hammer out a deal now means working with limited time and stronger Republican contingents in both chambers, the source said.

Boehner made clear Friday that the negotiations with Obama on a broad deficit reduction agreement hit an impasse this week when both sides offered their “bottom line” positions that included major concessions — but remained a few hundred billion dollars apart.

With his alternative plan torpedoed by his own party, Boehner said it now is time for Obama and Senate Democrats to come up with a solution.

Boehner also denied a reporter’s suggestion that he is walking away from further talks, but he offered no timetable or mechanism for resuming discussions.

In the Senate, Reid said all House measures on the fiscal cliff so far have failed to meet the minimum demands of Obama, such as wealthy Americans paying more to prevent an increased burden on middle-class families.

“I like John Boehner, but gee whiz, this is a pretty big political battering that he has taken,” Reid said, calling on the speaker to allow a vote on the Senate-passed Obama plan. “It will pass. Democrats will vote for it. Some Republicans will vote for it. That is what we are supposed to do.”

On Thursday night, the House passed a measure that would reduce the impact of the fiscal cliff’s automatic spending cuts on the military.

However, the chamber then went into recess when it was clear Boehner lacked the votes for his separate tax plan that maintained cut rates on income up to $1 million.

Conservatives opposed to any kind of increase in tax rates refused to sign on, and with Democrats unified in their opposition, the measure had no chance of passing.

“There was a perception created that that vote last night was going to increase taxes. I disagree with that characterization,” Boehner said Friday by way of explanation, adding that “the perception was out there, and a lot of our members did not want to have to deal with it.”

Reid had said the Senate would spurn the Boehner plan if it passed the House, and Obama promised to veto it if it reached his desk. According to Republican sources, the zero chance for Boehner’s Plan B to actually become law influenced some wavering House members to reject it.

Obama campaigned for re-election on extending the tax cuts that date back to his predecessor’s administration on income up to $250,000 for families, but returning to higher rates on amounts above that threshold.

Some House Republicans have said they would join Democrats in supporting the president’s proposal in hopes of moving past the volatile issue to focus on the spending cuts and entitlement reforms they seek.

The Plan B was significant because Republican leaders previously insisted they wouldn’t raise rates on anyone.

Boehner had complained Thursday that in making that concession, he expected but never got significant concessions from Obama.

He elaborated on the negotiations Friday, saying he told Obama that his latest proposal made over the weekend was his bottom line. Boehner said Obama told him the White House counterproposal Monday was the president’s bottom line.

Boehner also repeated his complaint that Obama and Democrats were unwilling to address the spending cuts and entitlement reforms that he considers necessary to properly address the nation’s chronic federal deficits and debt.

“What the president has proposed so far simply won’t do anything to solve our spending problems,” Boehner said, noting that “because of the political divide in the country, because of the divide here in Washington, trying to bridge these differences has been difficult.”

In his statement Friday, Obama said he had compromised at least halfway on major issues, and that both sides have to accept they will not get all they want.

The possibility of a fiscal cliff was set in motion over the past two years as a way to force action on mounting government debt.

Now legislators risk looking politically cynical by seeking to weaken the measures enacted to try to force them to confront tough questions regarding deficit reduction, such as reforms to popular entitlement programs such as Social Security, Medicare and Medicaid.

Polling has consistently shown most Americans back the president, who insists wealthy Americans must pay more, rather than Boehner and his Republican colleagues, who have balked at tax rate hikes and demanded spending cuts and entitlement program reforms.

A new CNN/ORC International survey released Thursday showed that just over half of respondents believe Republicans should give up more in any solution and consider the party’s policies too extreme.

The two sides seemingly had made progress earlier this week on forging a $2 trillion deficit reduction deal that included new revenue sought by Obama and spending cuts and entitlement changes desired by Boehner.

The president’s latest offer set $400,000 as the income threshold for a tax rate increase, up from his original plan of $250,000. It also included a new formula for the consumer price index applied to some entitlement benefits, much to the chagrin of liberals.

Called chained CPI, the new formula includes assumptions on consumer habits in response to rising prices, such as seeking cheaper alternatives, and would result in smaller benefit increases in future years.

Statistics supplied by opponents say the change would mean Social Security recipients would get $6,000 less in benefits over the first 15 years of chained CPI.

Liberal groups sought to mount a pressure campaign against including the chained CPI after news emerged this week that Obama was willing to include it, calling the plan a betrayal of senior citizens who had contributed throughout their lives for their benefits.

CNN

WASHINGTON (CNN) — House Speaker John Boehner’s proposal to avert the looming fiscal cliff’s automatic tax increases failed to curry enough Republican support Thursday night, after which Congress left for the holiday with no clear end in sight in the high-stakes debate.

Boehner said earlier Thursday that he was confident that his so-called Plan B — which would extend tax cuts that are set to expire at year’s end for most people while allowing rates to increase to 1990s levels on income over $1 million — would pass the House, and in the process put pressure on President Barack Obama and the Democratic-controlled Senate.

But his gambit seemed in doubt later as Republican leaders struggled to get most all their members to sign on — even enlisting senators like Sen. Rob Portman, to work the House floor — knowing the chamber’s Democrats oppose it.

Then, around 8 p.m., House Majority Leader Eric Cantor announced that the measure would not go up for a vote as planned.

“The House did not take up the tax measure today because it did not have sufficient support from our members to pass,” Boehner said in a statement. “Now it is up to the president to work with Senator (Harry) Reid on legislation to avert the fiscal cliff.”

Democratic leaders already had signaled they oppose the so-called Plan B.

After Thursday night’s unexpected reversal, Republican legislators walked past reporters through the halls of Congress, and most did not take questions.

One who did — Rep. Jeff Flake, an Arizonan who will move to the Senate next month — said he was disappointed.

“It’s too bad; I’d rather vote on it tonight,” said Flake, who said he sides with Democrats in backing the extension of tax cuts except for household income of more than $250,000. “Get it done.”

What this means next in the fiscal cliff talks is unclear. From here, scenarios range from intensified and ultimately successful talks in the coming days or entrenchment as the fiscal cliff becomes a reality next year, when a new Congress could enter negotiations with Obama.

The Plan B was significant because Republican leaders previously insisted they wouldn’t raise rates on anyone, while Obama called tax rates for those earning more than $250,000 threshold to return to 1990s levels while extending tax cuts for everyone else.

Although the House didn’t vote on Boehner’s tax measure, most Republicans did vote together earlier Thursday as the House narrowly approved, 215-209, a related measure to alter automatic spending cuts set to kick in next year under the fiscal cliff, replacing cuts to the military with reductions elsewhere.

The Congressional Budget Office said this would lead to $217.7 billion in cuts over the next decade, short of the $1.2 trillion in cuts that would go into effect in January if the fiscal cliff isn’t averted.

Moments after that vote, the White House issued a statement indicating it would veto this bill. But that should be a moot point, since Senate Majority Leader Harry Reid has said he won’t bring it up for a vote.

“For weeks, the White House said that if I moved on rates, that they would make substantial concessions on spending cuts and entitlement reforms,” House Speaker John Boehner said before his plan fell flat. “I did my part. They’ve done nothing.”

While the Ohio congressman said Obama seems “unwilling to stand up to his own party on the big issues that face our country,” Democrats say Republican leaders are buckling to their conservative base by backing off as negotiations seemed to be nearing a deal.

White House spokesman Jay Carney called the GOP alternatives “a major step backwards,” claiming they’d lead to extended tax cuts of $50,000 for millionaires.

Reid slammed the two Republican measures — the one that passed and the one that wasn’t brought up for a vote — as “pointless political stunts.”

The war of words notwithstanding, Boehner, Carney and Senate Democratic leaders all said they are ready to talk. Reid has said the Senate — with many members attending a memorial service Friday and funeral in Hawaii on Sunday for Sen. Daniel Inouye — will be back at work December 27.

And after Thursday’s session, Cantor’s office said legislative business was finished for the week but the House could reconvene after Christmas if needed.

“I remain hopeful,” Boehner said. “Our country has big challenges, and the president and I are going to have to work together to solve those challenges.”

The path toward the fast-approaching fiscal cliff

The possibility of a fiscal cliff — which economists warn will hit the American economy hard — was set in motion two years ago, as a way to force action on mounting government debt.

Negotiations between top Congressional Republicans and Democrats resumed after Obama’s re-election last month as did the barbs from both sides.

Polling has consistently shown most Americans back the president, who insists wealthy Americans must pay more, rather than Boehner and his Republican colleagues, who have balked at tax rate hikes and demanded spending cuts and entitlement program reforms.

A new CNN/ORC International survey released Thursday showed that just over half of respondents believe Republicans should give up more in any solution and consider the party’s policies too extreme.

The two sides seemingly had made progress on forging a $2 trillion deficit reduction deal that included new revenue sought by Obama and spending cuts and entitlement changes desired by Boehner.

Senior administration officials said Obama and Boehner have not spoken since Monday, when the president made a counterproposal to a Republican offer over the weekend.

The president’s offer set $400,000 as the household income threshold for a tax rate increase.

It also included a new formula for the consumer price index applied to benefits for programs such as Social Security, Medicare and Medicaid to protect against inflation, much to the chagrin of some liberals.

The new calculation, called chained CPI, includes assumptions on consumer habits in response to rising prices, such as seeking cheaper alternatives, and would result in smaller benefit increases in future years.

Statistics supplied by opponents say the change would mean Social Security recipients would get $6,000 less in benefits over the first 15 years of chained CPI.

Boehner essentially halted negotiations by introducing his Plan B on Tuesday. He described it as a fallback option to prevent a sweeping tax increase when tax cuts dating to President George W. Bush’s administration expire in two weeks.

The spending cut vote — similar to one passed by the House last year that went nowhere in the Senate — was added to the docket later Thursday, to appeal to conservative legislators upset about backing a tax increase without acting on spending and protecting the military budget.

The House speaker’s reasoning was that the passage of Plan B and the spending bill would put the onus on Obama and Senate Democrats to accept them or offer a compromise.

For now, the Obama administration won’t have to weigh in on the tax part of that scenario.

As to the House-approved spending cuts bill, White House spokeswoman Amy Brundage dismissed the GOP alternative as “nothing more than a dangerous diversion” for eliminating federal funding by negatively impacting millions of seniors, disabled individuals and poor and at-risk children.

In a statement Thursday night, the White House didn’t address Thursday’s House proceedings but referenced its top priority — ensuring that 98% of Americans don’t see their taxes rise in January.

The statement expressed confidence that there will be deal on the fiscal cliff but with no explanation of how, when or what such an agreement would look like.

“The president will work with Congress to get this done, and we are hopeful that we will be able to find a bipartisan solution quickly that protects the middle class and our economy,” the White House said.

tax-returns-pic(CNN) — As many as 100 million taxpayers may be unable to file their returns until late March and would face refund delays if Congress fails to reach a fiscal cliff deal by Dec. 31 that includes an Alternative Minimum Tax fix.

That’s the latest estimate from the IRS, which would have to do some serious system reprogramming in the absence of an AMT provision.

Here’s the problem: Income exemption levels under the “wealth tax” — as the AMT is known — were never adjusted for inflation since it was enacted decades ago.

So Congress has regularly passed an AMT “patch” to correct for that by raising the exemption levels.

Except that lawmakers have so far failed to do so for 2012. And tax filing season begins in less than two weeks.

Without a patch, $45,000 for joint filers and $33,750 for single taxpayers is exempt from the AMT. But adjusted for inflation, those levels would jump to $78,750 and $50,600 in 2012, according to bills in the House and Senate.

No AMT fix would mean “lengthy delays of tax refunds and unexpectedly higher taxes for many taxpayers, who will be unaware that they are newly subject to AMT liability,” IRS Acting Director Steven Miller said in a letter to House and Senate tax writers on Wednesday.

Without a patch, he estimates that close to 30 million additional taxpayers would have to pay the AMT.

And, he added, “[I]f Congress were to act at some point next year to enact a new AMT patch, the time and substantial expense necessary for the IRS to reprogram its systems to reflect expiration of the patch would ultimately be wasted.”

The most aggravating thing about the situation: Both parties will agree to patch the AMT. The only question is when. At the moment, the patch is being held hostage to the fiscal cliff negotiations.

Washington (CNN) — A scheduled showdown vote Thursday evening in the U.S. House will determine how Congress and the White House proceed on fiscal cliff negotiations.

With less than two weeks until the automatic tax hikes and spending cuts of the fiscal cliff take effect, the House will consider two measures proposed by Speaker John Boehner in the latest wrinkle of tense negotiations with President Barack Obama.

One of the proposals would amount to both a concession by Republicans and a hard-line stance against the president on taxes. It would extend tax cuts scheduled to expire at the end of the year for most people while allowing rates to increase to 1990s levels on income over $1 million.

A second proposal would change the automatic spending cuts set to kick in next year under the fiscal cliff, replacing cuts to the military with reductions elsewhere.

The White House threatened Wednesday to veto Boehner’s tax plan, saying it would achieve little and diverted the focus from efforts to negotiate a broader agreement to reduce the nation’s chronic federal deficits and debt.

While considered a negotiating tactic to pressure Obama to make more concessions, the vote also seeks to turn public opinion that now backs the president over Republicans in the talks.

A new CNN/ORC International poll Thursday showed that just over half of respondents believe Republicans should give up more than Democrats in any bipartisan solution to the country’s problems.

The survey also indicated that a narrow majority of Americans consider the Republican Party’s policies and views as too extreme, a first for the GOP, while fewer than a third said they trust congressional Republicans more than the president to deal with the major issues facing the nation.

Until Boehner essentially halted negotiations by introducing his so-called Plan B on Tuesday, the two sides made progress on forging a $2 trillion deficit reduction deal that included new revenue sought by Obama and spending cuts and entitlement changes desired by Boehner.

The stakes are high as economists say that failure to reach an agreement could spark another recession.

Boehner described his Plan B as a fallback option to prevent a sweeping tax hike when tax cuts from the administration of President George W. Bush expire at the end of the year.

Sources said the Boehner measure also could include extending the current estate tax and alternative minimum tax, two steps sought by Republicans.

GOP leaders also had planned to vote Thursday on Obama’s long-standing proposal to extend the Bush-era tax cuts on income up to $250,000, a lower threshold than Boehner’s alternative.

However, Republicans decided to drop the vote on Obama’s version, which was a major theme of the president’s re-election campaign.

In the negotiations, Obama had agreed to raise his threshold to income over $400,000, and a GOP aide told CNN that change made a vote on the original plan unnecessary.

At the same time, Boehner is having trouble rounding up Republican support for his Plan B. With Democrats expected to oppose it, the speaker can only afford about two dozen GOP defections to get it passed.

Because of their difficulty in securing votes from conservatives, GOP leaders added a vote Thursday on the separate measure that would replace automatic spending cuts to defense with cuts elsewhere.

Obama told reporters Wednesday that Republicans were focused too much on besting him personally rather than thinking about what’s best for the country.

“Take the deal,” Obama said to Republicans, referring to the broader proposal, adding that it would “reduce the deficit more than any other deficit reduction package” and would represent an achievement.

“They should be proud of it,” Obama said. “But they keep on finding ways to say ‘no’ as opposed to finding ways to say ‘yes.’”

In his own statement Wednesday — a 52-second appearance before reporters in which he took no questions — Boehner said the president had yet to offer a balance between increased revenue and spending cuts that he has been promising.

While the Boehner plan represents a concession from his original vow to oppose any tax rate increase, it sets a higher threshold than the $400,000 sought by Obama.

Boehner said that once his plan passes the House, Obama can either persuade Senate Democrats to accept it or “be responsible for the largest tax increase in American history.”

Anti-tax crusader Grover Norquist provided political cover for Republicans who have signed his pledge against tax increases, saying Wednesday that legislators who vote for Boehner’s Plan B would adhere to the intent of their promise.

The Obama administration and congressional Democrats said Boehner changed course because he was unable to muster Republican support for the larger deal being negotiated with the president.

At his news conference, Obama alluded to last Friday’s Connecticut school shootings in calling on Republicans to put aside political brinksmanship.

“If there’s one thing we should have after this week, it should be perspective about what’s important,” he said.

“Right now, what the country needs is for us to compromise,” Obama continued, describing the GOP refusal to accept a compromise as “puzzling.”

Asked why an agreement was proving so elusive after both sides had made concessions, Obama said it might be that “it is very hard for them to say ‘yes’ to me.”

“At some point, they’ve got to take me out of it,” Obama said of Republicans, adding that they should instead focus on “doing something good for the country.”

In addition, Obama said Wednesday Boehner’s proposal “defies logic” because it raises tax rates on some Americans, which Republicans say they do not want, and contains no spending cuts, which Republicans say they do want.

He also criticized the measure as a benefit for wealthy Americans, who would have lower tax rates on income up to $1 million.

GOP leaders planned the second vote Thursday on spending cuts after Obama spoke. It changes the painful automatic budget cuts set to take effect next year under a debt ceiling agreement in 2011 intended to spur congressional action on the deficit.

Obama and Democrats argue that increased revenue, including higher tax rates on the wealthy, must be part of broader deficit reduction plan to prevent a tax increase on middle-class Americans.

Polls have consistently showed support for the Obama plan, and some Republicans have called for acceding to the president on the tax issue in order to focus on cuts to spending and entitlement programs.

Senior administration officials said Obama and Boehner have not spoken to each other since Monday, when the president made a counter-proposal to a Republican offer over the weekend.

Both the GOP’s weekend proposal and Obama’s response included concessions, raising hopes that a deal was within reach.

Since then, conflict rather than compromise has been the public posturing of the talks.

After Boehner proposed his Plan B alternative Tuesday, Senate Majority Leader Harry Reid of Nevada said the speaker appeared to be yielding tea party conservatives opposing a wider deal.

“It would be a shame if Republicans abandoned productive negotiations due to pressure from the tea party, as they have time and again,” Reid said.

Boehner’s spokesman, Michael Steel, shot back that the Plan B proposal gave Democrats what they wanted: higher tax rates on millionaires.

However, White House spokesman Jay Carney argued that Obama and Democrats needs to secure more revenue up front to ensure that concessions on spending cuts and entitlement reforms don’t have to harm middle class Americans.

Obama’s latest counter-proposal on Monday generated protests from the liberal base of the Democratic Party because it included some changes to entitlement programs such as Social Security, Medicare and Medicaid.

In particular, liberals cited Obama’s willingness to include a new formula for the consumer price index (CPI) applied to benefits to protect against inflation.

The new calculation, called chained CPI, includes assumptions on consumer habits in response to rising prices, such as seeking cheaper alternatives, and would result in smaller benefit increases in future years.

Statistics supplied by opponents say the change would mean Social Security recipients would get $6,000 less in benefits over the first 15 years of chained CPI.

Carney said Obama’s CPI proposal “would protect vulnerable communities, including the very elderly, when it comes to Social Security recipients.”

He called the president’s acceptance of the chained CPI a signal of his willingness to compromise.

President Barack Obama and House Speaker John Boehner are narrowing the divide between their positions while contending with discontent among their respective ranks.

Boehner on Tuesday proposed what recently was the unthinkable for Republicans — letting tax rates go up on income above $1 million as a short-term step to avoid some of the fiscal cliff while continuing to negotiate a broader deal.

The White House and Democratic leaders immediately rejected Boehner’s move, saying the focus should be on a comprehensive deficit-reduction agreement instead of a partial step that no one likes.

Glen Walker has more on the political chess match.

 

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