Movement Seen in 'Fiscal Cliff' Talks

House Speaker John Boehner and President Barack Obama can both claim electoral mandates to support their positions on taxes.
Associated Press + More

By ANDREW TAYLOR and JIM KUHNHENN, Associated Press

WASHINGTON (AP) — The White House and congressional Republicans are a long way from agreeing on a plan to deal with the "fiscal cliff." But it seems like some progress is being made.

House Speaker John Boehner is offering $1 trillion in higher tax revenue over 10 years and an increase in the top tax rate on people making more than $1 million a year. He's also offering a large enough extension in the government's borrowing cap to fund the government for one year before the issue must be revisited — conditioned on President Barack Obama agreeing to the $1 trillion in cuts.

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The offer, made Friday after a long impasse between Boehner, R-Ohio, and Obama, calls for about $450 billion in revenue from increasing the top rate on million-dollar-plus income from 35 percent to the Clinton-era rate of 39.6 percent.

The additional revenue required to meet the $1 trillion target would be collected through a rewrite of the tax code next year and by slowing the inflation adjustments made to tax brackets.

In return, Boehner is asking for $1 trillion in spending cuts from government benefit programs like Medicare. Those cuts would defer most of a painful set of across-the-board spending cuts set to slash many domestic programs and the Pentagon budget by 8-9 percent, starting in January.

Boehner's proposal was described Sunday by officials familiar with it. They required anonymity because of the sensitivity of the talks.

Boehner also continues to press for a less generous inflation adjustment for Social Security benefits, a move endorsed by many budget hawks. Obama and Democrats on last year's deficit "supercommittee" endorsed the idea in offers made last year, but they're more reluctant now.

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The new inflation adjustment would also raise about $70 billion over a decade in new revenues because tax brackets would rise more slowly for inflation, driving people more quickly into higher tax brackets.

The increased optimism come as time is running out before the adjournment of Congress. Tax rates on all workers go up in January, and $109 billion worth of across-the-board spending cuts begin to take effect then as well. Taken together with the expiration of extended jobless benefits and a 2-percentage-point break in Social Security payroll taxes, the combination of austerity steps threatens to send the economy back into recession.

The burst of optimism is tempered by the caution that the remaining steps to reaching a deal — particularly how much to cut Medicare and whether to impose the new, less generous inflation adjustment to Social Security — are difficult. Then comes the job of selling it to a polarized Congress, where GOP conservatives have been railing against higher tax rates for months as sure to cost jobs and hurt small business, and Democrats have taken a harder line against cost curbs to Medicare.

But it appears clear there is momentum as White House and congressional aides worked through the weekend.

The movement comes as an increasing number of Republicans have called for a tactical retreat that would hand Obama a victory on his longstanding campaign promise to raise taxes on households making more than $250,000 a year. That increase, combined with an increase in the tax rate on investment income from 15 percent to 20 percent, would raise about $800 billion in tax revenue over a decade.

In that context, Boehner's move could be seen as an attempt to get spending cuts linked to the rate increase rather than giving them up and getting nothing in return. Judging from the numbers, Boehner is also willing to allow tax rates on investment income to increase for high-end income and allow the reinstatement of curbs on the value of exemptions and itemized deductions for high-income earners.

Still, the Boehner offer is sure to cause unrest among many conservative Republicans dead set against raising tax rates at all.

Obama has offered $600 billion in spending cuts over a decade, including $350 billion from federal health care programs and $250 billion from other cuts to domestic programs like farm subsidies and the pension program for federal workers, and through sales of used federal property.