Crunch time for fiscal cliff talks

t's crunch time for avoiding the fiscal cliff, with President Barack Obama and House Speaker John Boehner and their aides holding private talks on issues that will affect every American.

Three weeks remain to cut a deal before the automatic tax hikes and spending cuts of the fiscal cliff go into effect on Jan. 1.

Obama and Boehner met face-to-face Sunday for the first time since Nov. 16. It also was their first one-on-one meeting in more than a year, when talks broke down on a comprehensive agreement to reduce the nation's chronic federal deficits and debt.

In a rare display of bipartisan concurrence, both sides issued identical statements declaring that no details of the meeting would be forthcoming.

"This afternoon, the president and Speaker Boehner met at the White House to discuss efforts to resolve the fiscal cliff," the separate but essentially joint statements said. "We're not reading out details of the conversation, but the lines of communication remain open."

Staff personnel for both sides also have been talking, but few details are available.

Before meeting with Boehner on Sunday, Obama met Friday with House Democratic leader Nancy Pelosi and spoke to Senate Democratic leader Harry Reid, according to a Democratic source familiar with the talks.

The outline for a deal has become clear in recent weeks. Both sides agree that more revenue from taxes should be part of the equation, with Obama seeking $1.6 trillion and Republicans offering $800 billion.

However, Boehner's side wants additional revenue to come from tax reform, such as eliminating some deductions and loopholes, while Obama demands that tax rates increase for upper-income brackets.

Boehner and Republicans also seek savings from entitlement programs such as Social Security, Medicare and Medicaid totaling another $800 billion or so, while Obama has proposed $400 billion in reduced entitlement costs -- but not including Social Security.

Another sticky issue -- whether the need to raise the federal debt ceiling early next year should be part of the discussion -- remains unresolved. Obama says absolutely not, while Boehner says that any increase in the federal borrowing limit must be offset by spending cuts.

It remains unclear if a deal will happen before the end of the year or if the negotiations will carry over into 2013, after the fiscal cliff takes effect.

While economists warn that going over the fiscal cliff could lead to a recession, the administration has signaled it can delay some of the effects to allow time to work out an agreement.

Without action now, the nonpartisan Tax Policy Center estimates that middle-class families would pay about $2,000 a year more in taxes. Even with a deal, revisions in the tax code and other changes would mean everyone pays a bit more starting next year.

All signs point toward a two-step approach sought by the newly re-elected Obama.

An initial agreement reached now would extend current tax rates for most people while letting rates return to higher levels on upper-income brackets.

The president wants the threshold for higher rates to be income over $250,000 for families, while Republicans oppose any rate hike. A possible compromise would increase the income level for the higher rates to kick in.

Such an agreement would put off the main worry of the fiscal cliff -- expiration of Bush-era tax cuts that would raise everyone's rates.

Obama and Democrats say they would then be ready to negotiate significant savings from entitlement programs, while Republicans say they need to first see commitment on entitlement reforms before accepting any higher tax rates.

Pressure for some kind of agreement now increases daily. Some in Congress warn that the legislative process will need two weeks to work through potentially complex measures from whatever deal gets worked out, meaning a de facto deadline of Friday may exist.

At the same time, voices from inside and outside the process say something must happen now.

On Sunday, International Monetary Fund chief Christine Lagarde echoed numerous economic experts in predicting a sharp drop in confidence and "zero" U.S. economic growth if there's no agreement.

The tax issue was a main November election campaign topic, with Obama saying the wealthiest Americans must pay more and Republicans opposing any tax rate increase.

Four polls in the past two weeks, including a new one released Monday, show that more Americans support Obama's proposal.

At the same time, cracks are appearing in the GOP facade against a rate hike.

Sen. Bob Corker of Tennessee said Sunday that he would support raising taxes on the top 2 percent of income earners, arguing that it will better position Republicans to negotiate for larger spending cuts to Social Security and Medicare despite opposition from many Democrats.

"A lot of people are putting forth a theory, and I actually think it has merit, where you go ahead and give the president ... the rate increase on the top 2 percent, and all of a sudden the shift goes back to entitlements,"

Corker said on "Fox News Sunday."

Fellow Republican Sens. Tom Coburn of Oklahoma and Susan Collins and Olympia Snowe of Maine also have said they could vote for such a limited tax hike.

On the House side, Rep. Tom Cole of Oklahoma reiterated Sunday that he could go along with higher rates on the wealthy.

"You have to do something, and doing something requires the cooperation of the Senate, which the Democrats run, and the signature of the president," he said on CNN's "State of the Union."

Meanwhile, conservative colleague Rep. Marsha Blackburn of Tennessee refused to budge from GOP orthodoxy against higher tax rates.

Even though Obama won re-election and Democrats increased their Senate majority while narrowing the Republican majority in the House, she insisted that the November vote showed that voters "clearly said we don't want our taxes to go up."

 

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