WASHINGTON -- Negotiations to resolve forthcoming tax hikes and spending cuts had their bleakest day in weeks on Tuesday, aides from both sides told The Huffington Post. Still, those involved in talks between President Barack Obama and House Speaker John Boehner (R-Ohio) said they held hope that the snag was simply the usual negotiation histrionics and won't prevent a deal before the so-called fiscal cliff.
Boehner and Obama remain in talks, aides in the House and in the Obama administration said. But bickering and acrimony was on the rise. A flurry of new proposals, hastily offered press releases, and emotional caucus meetings on Tuesday had folks on Capitol Hill legitimately worried that they will burn through Congress's traditional Christmas deadline for resolving legislative standoffs without reaching an agreement.
"Today was a step back," said one top Senate Democratic aide. "There are two schools of thought. Either the wheels are totally coming off or one wheel has come off and can still be put back on. I'm more towards the former."
The snarl started with a step that, under normal political circumstances, would have brought both sides closer. The White House on Monday night made its third offer to Boehner, raising the income level for tax increases to $400,000 from $250,000. It called for $800 billion in savings, including $290 billion in interest savings, $100 billion in defense cuts, and $130 billion in savings that would come from adjusting the inflation index for Social Security benefits.
It had some progressive priorities as well -- money for unemployment benefits and infrastructure spending, and preservation of Medicare's eligibility age. Mostly, however, the offer was an attempt to lure both the speaker and moderates in his GOP caucus closer to the dotted line.
The administration received the expected pushback from congressional Democrats during caucus meetings on Tuesday. But aides were heartened when House Minority Leader Nancy Pelosi (D-Calif.) suggested she could get the latest proposal approved by House Democrats if need be.
But even before Pelosi could make that pronouncement, Boehner's office had rejected the offer. The speaker's aides stressed that the revenue targets were too high and the cuts too low and too manufactured (they didn't want to count savings from interest). But instead of hitting the pause button and coming back with a counter-proposal, Boehner came back with a Plan B, calling for tax rates on income above $1 million to lapse to pre-Bush levels. Nothing else was touched -- not the unemployment insurance of infrastructure money the White House wants, nor the $1 trillion in sequester-related cuts that House Republicans have decried for months.
A Republican leadership aide stressed that Boehner wasn't closing the door on larger talks with the White House. "This is a dual track thing," the aide said.
But Boehner clearly didn't like the state of negotiations. So he chose to roll the dice.
"We are in a much better place leverage-wise if the issue isn't about holding hostage tax rates for highest income earners," the aide said. "We are going to keep talking to them to try and get a bigger deal, but if we can't we will do something to make sure people's taxes don't go up." The caucus could deal with sequestration "before or after" it took place, the aide added. "People are prepared to go into the New Year hitting the sequester."
Several Republican senators cheered Boehner's Plan B.
“I’m convinced the president has decided to take us off the cliff, and I think we have a responsibility to people who would be hurt by that to try to come up with an alternative," said Sen. John Cornyn (R-Texas). "So I commend him for doing that. But it’s hard to negotiate when you don’t have a negotiating partner who’s willing to negotiate to get things fixed.”
But beneath the surface, it was easy to see skepticism or confusion. The National Review on Tuesday afternoon reported that several Republican senators thought the ploy would "ultimately die in the Senate." Sen. Marco Rubio (R-Fla.) didn't go so far, but his response to Plan B underscored how unlikely it was to become law.
"I continue to know that raising taxes on anybody is not a good way to generate economic growth," said the Florida Republican. "I understand what he’s doing. I’m not going to sit here and criticize what he’s trying to do to avoid the country going off the fiscal cliff, but by the same token I’m deeply committed to the idea that economic growth is the only way forward for our country and I think tax increases hurt economic growth.”
What happens next is now a topic of theorizing among reporters and pundits. The House will likely hold two votes. The first will be to extend tax rates for those with income below $250,000. It will fail. The second would be on Boehner's Plan B. House Democrats weren't willing to concede that it would pass. House Minority Whip Steny Hoyer (D-Md.) told reporters he would “strongly urge” members of his caucus to vote against it. Even if it did pass, a Senate Democratic aide said that Majority Leader Harry Reid (D-Nev.) would kill it in the Senate.
Boehner will have scored himself a good talking point (having shown flexibility for raising rates that Democrats rejected), but at a cost.
"It is House Republicans being forced by the speaker to vote to increase taxes on the rich on a bill that is going nowhere, with nothing on the spending cuts side," said the top Democratic aide. "You can't be a little bit pregnant. The headlines tomorrow are going to be: Republicans voted to increase taxes on millionaires."
The aide, who like all others would speak on the state of negotiations only on condition of anonymity, remained optimistic that Tuesday's developments weren't crippling to the negotiating process. "You always have to have one hiccup like that before a deal is cut," the aide said.
Boehner and Obama do seem to have a broad agreement that any final deal will have about $1 in revenue hikes for every $1 in spending cuts, though major differences remain in the details and, additionally, what to do about an impending need to raise the nation's debt ceiling.
But Boehner's gambit will reshuffle the deck with the fiscal cliff talks, either hardening Republican resolve to not negotiate or convincing moderate members that a comprehensive deal with the president is the only path forward.
"I believe that Speaker Boehner wants to get a big deal, period," said Hoyer in his weekly briefing. "I have no doubt. He’s said that to me. We’ve had discussions about it. I absolutely believe his good faith. I also believe he has a challenge in his side trying to figure out how he gets to where I think he needs to be. Now, it’s not going to be exactly what the president wants, it’s not going to be exactly what I want, perhaps not exactly what Speaker Boehner wants. But I think he knows we need to get to an agreement."
The top Republican House aide concurred that a big deal was still possible. But Boehner's Plan B had elongated an already tightly jammed legislative calendar.
"I haven't bought a flight home yet for Christmas," the aide said. "So take that for what it is worth."
CORRECTION: A previous version of this article understated the proposed cuts to the defense budget as $100, rather than $100 billion. Also, due to an editorial error, Boehner was incorrectly listed initially as a Democrat.
Also on HuffPost:
Military Health Care - $16 Billion
In his last offer to House Speaker John Boehner (R-Ohio), President Barack Obama lobbied for $16 billion in cuts from the military's health care program, TRICARE. In 2012, the president also proposed hiking fees for military personnel and veterans who receive benefits under the program in an effort to help cut the defense budget. His proposal drew significant fire from Republican lawmakers and veterans' groups.
Military Retirement Program - $11 Billion
Both sides agreed to cuts from the military retirement program. Rep. Eric Cantor (R-Va.) claimed during July 2011 talks that lawmakers had reached a tentative deal to slash <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">$11 billion</a>. Under the current system, military personnel receive immediate retirement benefits after serving for 20 years. According to a recent report from the Congressional Budget Office, the appropriation cost per active military service member has <a href="http://www.cbo.gov/publication/43574" target="_hplink">increased at a higher rate</a> than either inflation or the total pay package of private-sector employees. Given the budget constraints looming before the Defense Department, the CBO floated the idea of transitioning the military retirement program to a matching-payment model.
Federal Employee Retirement Program - $33 -$36 Billion
Cantor claimed that Republicans and Democrats had agreed to <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">$36 billion in savings</a> over 10 years from civilian retirement programs. The president proposed a marginally more modest figure of <a href="http://presspass.nbcnews.com/_news/2012/11/11/15089281-white-house-grand-bargain-offer-to-speaker-boehner-obtained-by-bob-woodward#.UKCJftkTtS8.twitter" target="_hplink">$33 billion</a> in his final offer to House Speaker John Boehner. Just this year, Republicans in the House Committee on Oversight and Government Reform also looked to find savings from the Federal Employee Retirement System by <a href="http://www.washingtonpost.com/blogs/federal-eye/post/house-committee-approves-measure-upping-federal-employee-contributions-to-retirement-plan/2012/04/26/gIQAuoW6iT_blog.html" target="_hplink">requiring employees to pay more of their salary</a> into their pensions, which Democrats opposed as a pay cut that would make civil service less attractive for top talent. In September 2011, the federal government employed <a href="http://www.fedscope.opm.gov/cognos/cgi-bin/ppdscgi.exe?DC=Q&E=/FSe%20-%20Status/Employment%20-%20September%202012&LA=en&LO=en-us&BACK=/cognos/cgi-bin/ppdscgi.exe?toc=%2FFSe%20-%20Status&LA=en&LO=en-us" target="_hplink">over two million individuals</a>, either through the cabinets or independent agencies. Many Republicans have complained that the federal workforce has ballooned during the Obama administration, and while the raw number of employees has risen by <a href="http://www.thefactfile.com/2012/01/23/the-size-of-the-federal-workforce-rapid-growth-for-some-stagnation-for-others/" target="_hplink">14.4 percent</a> between Sept. 2007 and Sept. 2011, the percentage of public employees out of the total civilian workforce has <a href="http://www.thefactfile.com/2012/01/23/the-size-of-the-federal-workforce-rapid-growth-for-some-stagnation-for-others/" target="_hplink">remained fairly constant</a> around 1.2 percent since 2001. Much of the raw growth has been concentrated in the Department of Defense, Veteran's Affairs and Homeland Security.
Agricultural Subsidies - $30 - $33 Billion
Democrats and Republicans agreed to cut as much as <a href="http://www.huffingtonpost.com/2012/11/12/fiscal-cliff-barack-obama-_n_2118739.html" target="_hplink">$30 billion</a> from agricultural subsidies; the main opposition fell along geographical lines rather than partisan ones. Hailing from an agriculture-heavy state, Sen. Max Baucus (D-Mont.) threatened to pull out of talks entirely if a deal included that much in subsidy reduction. The president ended up pushing for <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">$33 billion in cuts</a>, but that figure also included reductions in conservation programs. Baucus now tells HuffPost any cuts should be made through the farm bill, not fiscal cliff talks.
Food Stamps - $2 to $20 Billion
Cantor pushed hard for significant cuts to food stamps, formally known as the Supplemental Nutrition Assistance Program. He charged that the federal government could save as much as <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">$20 billion over ten years</a> by eliminating waste and fraud, but the White House countered that the real number was closer to $2 billion. Instead, those cuts would force the program to scale back on the number of enrollees and the level of benefits it could offer.
Flood Assistance - $4 Billion
Obama proposed cutting <a href="http://www.huffingtonpost.com/2012/11/12/fiscal-cliff-barack-obama-_n_2118739.html" target="_hplink">$4 billion from flood assistance</a> funding in his final offer to Boehner in July 2011. But Hurricane Sandy straining the National Flood Insurance Program; The New York Times <a href="http://www.nytimes.com/2012/11/13/nyregion/federal-flood-insurance-program-faces-new-stress.html?pagewanted=all&_r=0" target="_hplink">reports</a> that thousands of claims are being submitted daily, which could send the overall cost upwards of $7 billion for a program that suffers from a ballooning debt problem. And with climate change promising <a href="http://www.washingtonpost.com/blogs/capital-weather-gang/post/climate-change-predictions-foresaw-hurricane-sandy-scenario-for-new-york-city/2012/10/31/b78de428-2374-11e2-ac85-e669876c6a24_blog.html" target="_hplink">future flooding disasters</a> along the eastern seaboard, cutting the program looks unwise.
Home Health Care - $50 Billion
The president offered to cut <a href="http://presspass.nbcnews.com/_news/2012/11/11/15089281-white-house-grand-bargain-offer-to-speaker-boehner-obtained-by-bob-woodward#.UKCJftkTtS8.twitter" target="_hplink">$110 billion over the next decade</a> from the government's health care spending, excluding Medicare. Among the programs that could lose crucial funding is home health care, where Democrats and Republicans agreed to <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">$50 billion in reductions</a> over ten years. Cantor pushed for closer to $300 billion in spending cuts to health care, but Democrats appeared to stand firm.
Higher Education - $10 Billion
The president proposed cutting <a href="http://www.huffingtonpost.com/2012/11/12/fiscal-cliff-barack-obama-_n_2118739.html" target="_hplink">$10 billion from higher education</a> over the next decade, mostly from Pell grants. <a href="http://www.huffingtonpost.com/2012/08/27/pell-grants-college-costs_n_1835081.html" target="_hplink">Over nine million students</a> relied on federal subsidized loans to afford college during the 2010-2011 school year, and the skyrocketing costs have continued to diminish the purchasing power of the Pell grant program. Obama has actively worked to make college more affordable for lower-income students. Key Republican lawmakers have attempted to cut funding for student loans; most notably, Rep. Paul Ryan (R-Wis.) slashed the maximum award from $5,550 per student per year down to <a href="http://colorlines.com/archives/2011/07/dems_students_fight_to_save_pell_grants_amidst_debt_ceiling_talks.html" target="_hplink">just $3,040</a>.
Medicaid And Other Health- $110 Billion
The original funding levels proposed by Cantor and the GOP leadership would turn the entitlement program for America's poor into little more than a block grant program, Democrats claimed during the 2011 debt ceiling talks. Under such a program, they argued that states would then <a href="http://www.bloomberg.com/news/2012-09-11/medicaid-to-lose-1-26-trillion-under-romney-block-grant.html" target="_hplink">drop more people from enrollment</a> and scale back on health benefits. In fiscal year 2009, <a href="http://www.census.gov/compendia/statab/2012/tables/12s0151.pdf" target="_hplink">over 62 million Americans</a> -- many of them children -- depended on Medicaid for their health care. But the president did agree to <a href="http://presspass.nbcnews.com/_news/2012/11/11/15089281-white-house-grand-bargain-offer-to-speaker-boehner-obtained-by-bob-woodward#.UKCJftkTtS8.twitter" target="_hplink">$110 billion</a> in cuts from Medicaid and other health programs.
Medicare - $250 Billion +
Republicans pushed for a drastic overhaul to the entitlement program for America's seniors. Ryan infamously proposed turning Medicare into little more than a voucher system in which seniors would receive checks to purchase their own health care on the open market -- a plan that would ultimately <a href="http://www.huffingtonpost.com/kennethdavis/medicare-vouchers_b_1947804.html" target="_hplink">force individuals to shoulder more of the burden</a> for their health care costs. Democrats refused to accept changes similar to those in Ryan's plan. The president, however, was <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">more open to other GOP suggestions</a> on Medicare. In his final offer to Boehner, he agreed cut $250 billion over the next ten years -- in part by increasing premiums for higher-income seniors and by raising the eligibility age from 65 to 67 (although over a longer time frame).
Tax Reform - $800 Billion - $1.6 Trillion
Republicans have again and again <a href="http://www.politico.com/blogs/politicolive/0511/Boehner_Medicare_Medicaid__everything_should_be_on_the_table_except_raising_taxes.html" target="_hplink">decried any attempt</a> to raise taxes, either on the highest earners or on corporations. (A Democracy Corps/Campaign for America's Future survey shows that <a href="http://www.ourfuture.org/report/2012114508/cafdemocracy-corps-election-poll-2012" target="_hplink">70 percent of voters</a> support raising taxes on the wealthiest two percent of Americans.) Instead, Boehner has pushed for a <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">comprehensive tax reform bill</a> that would lower the marginal tax rates while closing loopholes and eliminating deductions in order to raise around $800 billion in additional revenues. For many Democrats, <a href="http://online.wsj.com/article/SB10001424127887323551004578117152861144968.html" target="_hplink">that figure simply isn't enough</a>. White House Press Secretary Jay Carney announced Tuesday that the president was aiming for as much as <a href="http://takingnote.blogs.nytimes.com/2012/11/13/showing-backbone-on-the-debt/" target="_hplink">$1.6 trillion in new revenues</a>, and the president told reporters on Wednesday that it would be <a href="http://www.huffingtonpost.com/2012/11/14/obama-tax-cuts_n_2131256.html" target="_hplink">practically impossible</a> to raise the amount of revenue he wanted simply from closing loopholes and lowering rates.
Social Security - $112 Billion
Social Security <a href="http://www.huffingtonpost.com/2012/11/14/fiscal-cliff-social-security_n_2130762.html?utm_hp_ref=mostpopular" target="_hplink">isn't driving the deficit</a>, yet Republicans have <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">pursued drastic changes</a> to the program. Sen. Harry Reid (D-Nev.) has promised that Social Security would be <a href="http://livewire.talkingpointsmemo.com/entry/reid-no-messing-with-social-security" target="_hplink">off the table</a> in the on-going negotiations to avoid the fiscal cliff, but Obama did concede to tying the benefits to a <a href="http://presspass.nbcnews.com/_news/2012/11/11/15089281-white-house-grand-bargain-offer-to-speaker-boehner-obtained-by-bob-woodward#.UKCJftkTtS8.twitter" target="_hplink">recalculated Consumer Price Index</a> that would ultimately provide less money to retirees. Sen. Bernie Sanders claims that, under such a measure, seniors who are currently 65 years-old would see their benefits drop by <a href="http://thehill.com/homenews/senate/267079-reid-assures-sanders-he-wont-agree-to-social-security-cuts-in-debt-deal" target="_hplink">$560 a month in 10 years</a> and by as much as <a href="http://thehill.com/homenews/senate/267079-reid-assures-sanders-he-wont-agree-to-social-security-cuts-in-debt-deal" target="_hplink">$1,000 in 20 years</a>. The Moment of Truth project (led by the two former co-chairs of the president's deficit reduction commission, former Sen. Alan Simpson (R-Wyo.) and former White House Chief of Staff Erskine Bowles) claims that the recalculated CPI could save as much as <a href="http://www.inthesetimes.com/article/11767/the_social_security_cut_washington_does_not_want_you_to_understand/" target="_hplink">$112 billion</a> from Social Security over the next ten years.
Tax Loopholes And Deductions - Up To $180 Billion
Although Cantor and other GOP House members demanded that any deficit-reduction deal brokered in 2011 be classified as <a href="http://www.huffingtonpost.com/2012/11/11/fiscal-cliff-talks-medicare-social-security_n_2113259.html" target="_hplink">revenue-neutral</a>, they were open to closing particular loopholes in the corporate tax code and limiting itemized deductions for individuals -- given that they were offset by other tax cuts. Out of the $50 billion in savings to be found over the next decade from closing loopholes, Cantor proposed getting $3 billion from eliminating the break for corporate-jet owners and another $20 billion from voiding the subsidies for the oil and gas industries. On the individual earner side, he proposed eliminating the second-home mortgage deduction for $20 billion, as well as limiting the mortgage deduction for higher-income households to rake in another $20 billion. He also offered to tighten the tax treatment of retirement accounts. But Democrats wanted to see even greater action taken on itemized deductions. In June 2011, Rep. Chris Van Hollen (D-Md.) proposed raising $130 billion in new revenues by capping itemized deductions at 35 percent for the highest income brackets. The GOP response to his proposal at the time was a resounding "no."
Bush Tax Cuts For The Wealthy - $950 Billion
Set to expire on Dec. 31, 2012, the Bush tax cuts represent one of the most controversial elements of the so-called fiscal cliff. They added over <a href="http://graphics8.nytimes.com/images/2011/07/24/opinion/sunday/24editorial_graph2/24editorial_graph2-popup.gif" target="_hplink">$1.8 trillion to the deficit</a> between 2002 and 2009. Yet Republicans argue that an extension is necessary to create jobs and spur economic growth. But a <a href="http://tpmdc.talkingpointsmemo.com/PDF/0915taxesandeconomy.pdf" target="_hplink">study</a> from the Congressional Research Service found that tax cuts for the wealthiest earners had little economic effect. The White House is pushing for a renewal only of those tax breaks for the lower- and middle-class Americans in order to save the average middle-class family <a href="http://money.cnn.com/2012/10/01/pf/taxes/fiscal-cliff-tax/index.html" target="_hplink">between $2,000 and $3,500</a> next year. Letting the cuts expire for those earning over $250,000 a year -- or the wealthiest two percent of Americans -- would haul in <a href="http://www.offthechartsblog.org/cbo-ending-high-income-tax-cuts-would-save-almost-1-trillion/" target="_hplink">$950 billion</a> in savings over the next decade, according to the CBO. Obama stressed how much the country stood to gain from such an approach Wednesday during a press conference. "If we right away say 98 percent of Americans are not going to see their taxes go up — 97 percent of small businesses are not going to see their taxes go up," he said. "If we get that in place, we're actually <a href="http://www.cnbc.com/id/49821777" target="_hplink">removing half of the fiscal cliff</a>."