Fiscal Cliff Watch: Talks Stall, GOP Weighs Tactical Retreat

Published Dec 14, 2012. In MNI.

WASHINGTON (MNI) - Unlike his loquacious predecessor Newt Gingrich who loved to regale all who would listen to him with his sweeping depiction of history and his ability to deploy military jargon, House Speaker John Boehner is not known for grandiosity.

He is prefers simple, usually clear, language and straightforward legislative tactics.

But this weekend he may be tempted to dip into one of the history books that Gingrich loved to recommend to his colleagues to review an important concept: the tactical retreat.

President Barack Obama met with Boehner twice in the past five days - last Sunday and Thursday - and it appears these sessions did little to narrow the differences between the two negotiators on how to avert the fiscal cliff and put in place a longer-term deficit reduction framework.

Increasingly Republicans are discussing a "Plan B" approach that would include passing in the House the Senate's tax bill that extends Bush-era tax cuts on the first $250,000 of income. In addition, they might try to pass separate legislation to cancel the coming across-the-board spending cuts, directed at defense programs, and regrouping to fight a pitched fiscal battle with Obama in a few months, using the debt ceiling as their leverage.

Boehner was asked several times at briefing Thursday about the scenario of the House passing the Senate tax cut bill and he carefully avoided ruling it out.

"The law of the land today is that everyone's income taxes are going up on Jan. 1. I've made it clear that I think that's unacceptable, but until we get this issue resolved, that risk remains," Boehner said.

Bob Bixby, executive director of the Concord Coalition, a budget watchdog group, said the past week has not been an encouraging one on the fiscal front.

"Not only are the President and the Speaker not coming closer together. They seem to be digging in their heels and refusing to make the basic concessions that are necessary to getting to a deal," Bixby said. "And as troubling, they are doing nothing to prepare their political bases for the concessions that will have to eventually accept - for Boehner on taxes and for Obama on entitlements."

Bixby said he understands the temptation for Republicans to view the debt ceiling as a point of leverage in the early months of 2013. But he thinks this is a very risky strategy.

"I'm not sure how the Republican leadership really sees last year's debt ceiling fight but many of their allies in the business community are in no hurry to repeat that fight ever - let alone next year. Many saw the fight as a Republican overreach," he said. "You would think the Republicans would be reluctant to do that again."

Budget experts say those in the financial markets who are craving specific deadlines, clear scenarios, and a precise roadmap for the next two weeks are certain to be frustrated.

One congressional staffer said, "Anyone who tells you that they know how this will play out and under what timeline is just making it up.

"This is not only a mess, but an incredibly complicated mess with an unbelievable number of moving pieces. I seriously doubt if even Obama and Boehner have any idea about how this is all going to play out. There is a lot of improvisation going on," he added.

Senate Majority Whip Dick Durbin, a Democrat, speculated this week that Boehner is not interested in serious budget talks until after he is re-elected as House Speaker Jan. 3. Republicans dismiss this charge.

Sen. Chuck Schumer, the third ranking Senate Democrat, said Thursday that while the fiscal cliff stalemate continues, the pattern of past budget negotiations shows impasses can end quickly once the parties decide to make concessions.

Budget Committee Chair Kent Conrad urged fiscal cliff negotiators this week to take key parts of the budget proposals by Obama and Boehner and use them to assemble a deficit reduction plan of nearly $4 trillion.

Conrad said a final deficit reduction package should include the $1.6 trillion in additional revenues that Obama proposed, as well as $500 billion in Medicare savings, $300 billion in discretionary savings and $200 billion from other entitlement programs.

He said this package would yield about $400 billion in interest savings over a decade.

The Senate Budget Committee Chair said when all of these elements are coupled with the more than $1 trillion in savings from the 2011 Budget Control Act, the final package approaches the $4 trillion in savings that was recommended by the Simpson-Bowles commission.

Other budget experts say a possible Obama-Boehner compromise might include agreeing to between $1 trillion and $1.2 trillion in additional revenue, partly generated by increasing by increasing the top marginal tax rate to 37% or 38% and increasing the threshold from Obama's much-cited number of $250,000 to $500,000 or even $1 million.

The revenue package might also include capping all deductions at $35,000 or $50,000. A pledge for tax reform to be completed next year along with an enforcement mechanism would be part of the revenue component of the deal.

The entitlement reform component could include the gradual increasing of the Medicare eligibility age from 65 to 67 and use of the chained CPI for indexing cost of living benefits. It would also include some additional entitlement reforms.

The final piece might include some additional savings generated by a mix of revenues and spending savings to postpone the $110 billion in across-the-board spending cuts for 2013.

But the essential political imperative would be for Boehner and Obama to agree on this package simultaneously, so that Boehner's concessions on revenues and Obama's on entitlements would occur in tandem.

--MNI Washington Bureau; tel: +1 202-371-2121; email: [email protected]