Report: Boehner Proposes Tax Rate Hike on Millionaires, White House Rejects (UPDATE: Or Not?)

Posted: Dec 17, 2012 10:17 AM

We had the AP's write-up of this story on the homepage yesterday, but I think it's worth a second look.  Politico initially broke the news, so let's consult the original source:

Speaker John Boehner has proposed allowing tax rates to rise for the wealthiest Americans if President Barack Obama agrees to major entitlement cuts, according to several sources close to the talks. It is the first time Boehner has offered any boost in marginal tax rates for any income group, and it would represent a major concession for the Ohio Republican. Boehner suggested hiking the Bush-era tax rates for top wage earners, including those with annual incomes of $1 million or more annually, beginning Jan. 1, two sources said. Obama and Boehner spoke by phone Friday after a lengthy face-to-face session at the White House on Thursday. The quickening pace of private conversations between the two key players in the fiscal-cliff talks shows progress is being made in the negotiations, although they are not close to a deal yet, sources said. Boehner also wants to use a new method of calculating benefits for entitlement programs known as “chained CPI,” which would slow the growth of Medicare and other federal health programs and save hundreds of billions over the next decade.

The speaker’s offer would not include extending federal unemployment benefits, and it is unclear how it would address sequestration — the tens of billions in spending cuts scheduled to go into effect for the Pentagon and other federal agencies starting Jan. 2. And Republicans remain unyielding on agreeing to raise the U.S. debt limit as part of any agreement to avoid the fiscal cliff. Boehner’s offer on tax rates was a significant move toward Obama’s position. But the proposal, as a whole, still isn’t acceptable to Democrats because of the level of revenue, the changes to entitlement programs that would hit beneficiaries and the absence of an extension for unemployment insurance benefits, according to a source familiar with the talks.

Reuters makes it official -- the White House isn't biting:

President Barack Obama is not ready to accept a new offer from the Republican leader of the U.S. the House of Representatives to raise taxes on top earners in exchange for major cuts in entitlement programs, a source said late Saturday. The shape and details of Boehner's offer were uncertain Saturday night, as was the exact reason the president was prepared to reject it. The source said Obama sees the offer made on Friday by U.S. House Speaker John Boehner as a sign of progress, but simply believes it is not enough and there is much more to be worked out before Obama can reciprocate. Tax rates and entitlements are the two most difficult issues in the so-far unproductive negotiations to avert the "fiscal cliff" of steep tax hikes and spending cuts set for the new year unless Congress and the president reach a deal to avoid them.  

Boehner also reported offered to take the debt ceiling off the table for one year.  Let me stipulate that without being privy to the high-level talks, it's all but impossible to get a good read on what's really going on behind closed doors.  One can only work off of public reporting and statements from the principals in the negotiations.  It's also important to acknowledge that Boehner is in a very tough, unenviable position.  Based on the available information, it looks like Boehner is walking into a trap.  Republicans continue to negotiate against themselves, offering reasonable compromises that are instantly rejected by the other side.  A few weeks ago, Boehner offered a revenue proposal to closely mirrored a plan Obama himself had touted last year.  No sale.  Over the weekend, Boehner for the first time formally broke the seal on tax rate increases, suggesting the GOP could allow the current rates to expire on families and businesses making $1 million or more per year.  This threshold has been publicly espoused by Chuck Schumer and Nancy Pelosi within the last six months.  But again, no sale at the White House.  Republicans continue to inch closer to the president's demands, yet what do they have to show for it?  They've been shot down at every turn, and Obama hasn't offered a single major concession whatsoever.  There are conflicting reports about whether the administration is open or closed to entitlement reforms and reductions (the GOP is asking to reduce the rate of growth, not impose actual cuts), but everything emanating from 1600 Pennsylvania Avenue appears to be strategically vague.  I've never been an advocate of Republicans simply walking away -- the pure "let it burn" scenario -- but the path Boehner is currently trotting down is worrisome.  It's possible that Boehner will manage to wring major and substantive entitlement changes out of the White House as part of a final deal, but that outcome seems exceedingly optimistic at this point.  What is more likely is a last-ditch "compromise" in which Republicans violate their core principle on tax rate increases in exchange for minor tweaks to entitlements and some on-paper spending reductions.  

In my view, it would be far better to execute the "two bills" solution, in which House Republicans can vote their conscience on tax rates by passing two pieces of legislation; the first would extend the rates for the middle class (perhaps permanently) while addressing the doc fix and AMT patch. The second would extend the rates for the top two brackets.  The Senate would only take up the former bill, though Senate Republicans could try -- likely to no avail -- to force a vote on the latter.  This contingency would at least allow the GOP to stick to its guns without obstructing the Democrats' tax hike obsession.  No Republican lawmaker would be compelled to directly vote for the tax increase.  Down the line, once Americans see yet another annual deficit in the ballpark of $1 trillion next year, Republicans would be in a much stronger position to turn the focus back to spending.  Plus, their anti-tax increase brand would remain intact heading into 2014.  Making a rotten deal with a president who clearly sees little need to compromise might help avert the fiscal cliff in the short term, but it could knee-cap Republicans in the longer term -- especially if they've lent their imprimatur to raising tax rates.  In short, if these tax increases are indeed inevitable, Republicans should engineer a scenario under which Democrats are solely responsible for that outcome, then immediately transition to shining the light exclusively on spending once Obama gets his way on these cosmetic (but costly) tax hikes.  This would be a far better policy and political result than aiding and abetting tax increases under the auspices of a lousy "bipartisan deal."

UPDATE - Is a deal taking shape?  CBS News' Major Garrett reports we might see the broad outlines of a compromise by mid-week.