House Speaker John Boehner privately told President Barack Obama that he's prepared to consider more than the $800 billion the GOP has already proposed in new tax revenues -- but only if the White House will back much deeper cuts to entitlement programs, according to several sources familiar with the talks.
Getting beyond $800 billion in revenue without raising tax rates on upper-income families would be difficult. Obama has long demanded that marginal income rates go up on the top 2 percent of Americans.
But for the time being, Boehner's private concession might not be the breakthrough the fiscal talks need. The White House has been resistant to additional entitlement savings -- their proposal has been stuck at $600 billion, and their revenue target is pegged at $1.4 trillion. Republicans insist a revenue increase that large could never pass the House or Senate.
Michael Steel, a spokesman for Boehner, said: "Speaker Boehner has always been and remains opposed to raising tax rates because raising tax rates costs jobs. He has said that publicly and privately."
With this stalemate, Republicans are starting to ponder a Plan B: Extend the Bush-era rates for families who earn less than $250,000 and then reopen the debate on taxes and entitlements next year, when the nation heads for the debt limit again.
"The White House hasn't come up with close to enough spending cuts and reforms to be worth $800 billion in additional revenue, let alone the -- substantial -- additional cuts and reforms that would be required for more than that," according to a Republican leadership aide.
The White House declined to comment on the president's private conversations. But White House aides say they have been asking the speaker's office for weeks to provide details of the cuts that Republicans want. The aides also argued that Republicans took a step back from a middle ground on taxes with their counteroffer Tuesday to lock in the Bush-era tax rates for the wealthiest 2 percent of Americans, saying they were skeptical about a verbal concession since the speaker has yet to detail such a plan on paper.
House Ways and Means Committee Chairman Dave Camp (R-Mich.), a close Boehner confidant involved in the negotiations, didn't knock down the idea of moving up from $800 billion in revenues. "I really don't have anything new to add on that," he said before disappearing into his office off the House floor.
Boehner's comments to Obama suggest the speaker is still pursuing a sweeping grand bargain deal, something that has been elusive since 2011, when the two men failed to reach a budget-slashing accord.
Still, Boehner's private olive branch doesn't appear to be shaking things loose in a major way. Leaders of both parties are growing more pessimistic, urging lawmakers to stay in Washington for protracted negotiations during the holiday season.
Some Republicans, sensing they have a losing hand in the fiscal talks, are increasingly signaling they would be open to folding now on taxes in order to renew their demands next year, when Obama requests an increase in the national borrowing limit, which stands at $16.4 trillion.
"I believe we're going to pass the $250,000 and below sooner or later, and we really don't have much leverage there because those rates go up by operation of law Dec. 31," said Sen. John Cornyn (R-Texas), the incoming No. 2 in his conference leadership. "I would focus on the areas where we do have more leverage."
If enough Republicans begin to sound like Cornyn, Obama would almost certainly get his wish: Congress would approve an extension of the Bush-era tax rates for families with annual salaries less than $250,000, and a tax hike from 35 percent to 39.6 percent for income above that amount. And Republicans would live to fight another day: demanding spending cuts to Medicare, Medicaid and Social Security when Obama formally requests an increase to the national borrowing limit to avoid a debt default.
Some in the right flank in the House and Senate are increasingly on board with this approach as well.
Sen. Ron Johnson (R-Wis.) said there's little Republicans can do to prevent a tax hike if Obama continues to demand one in the fiscal talks. He said passing an extension of tax rates under $250,000 and fighting the battle over the debt ceiling "may be the fallback position in terms of limiting the damage."
"The only fiscal restraint that we've actually been able to impose on the federal government is in relationship to the debt ceiling talks," Johnson said. "That's a point of negotiating leverage that conservatives cannot give up."
Even as they game out a backup plan, Boehner and Obama are still trying to reach a compromise to avert the $109 billion in spending cuts and tax increases poised to hit every American if Washington can't get a deal by year's end. The two men traded competing proposals this week: Under Boehner's plan, $800 billion in revenue would come from closing a range of unspecified tax deductions and more than $1 trillion would be felt in entitlement program cuts.
After demanding new taxes worth $1.6 trillion, Obama has lowered his revenue target to $1.4 trillion, a bulk of which would be paid for by raising tax rates on upper-income families. He has proposed cutting entitlements by $600 billion, a level far too low for Republicans. And he has insisted on a debt ceiling increase to be included in a final deal, a proposition Republicans have rejected.
But there's a hardening sense among Capitol Hill Republicans that they are losing this battle -- and that it makes more sense to wait until next year to fight, when it's time to raise the debt ceiling.
With little negotiating leverage, Sen. Bob Corker (R-Tenn.) has been a leading advocate of punting the big fights until the debt ceiling battle. He says Congress should extend the tax cuts to 98 percent of taxpayers, in line with the White House's position, then immediately turn to the debt ceiling. On Wednesday, he offered a bill to raise the debt ceiling by an additional $1 trillion in exchange for cuts out of Medicare, Medicaid and Social Security.
"I hope that I'm wrong, but I don't think we're going to get to the size agreement that is going to mitigate a debt ceiling" increase, Corker said Wednesday.
But Democrats have bad memories from the debt ceiling fight from summer 2011. After Republicans demanded dollar-for-dollar cuts to raise the borrowing limit, Congress approved about $1 trillion in spending cuts, with at least $1.2 trillion to come from a special supercommittee created to find additional savings. But since the supercommittee couldn't reach a deal, Congress imposed across-the-board spending cuts worth $1.2 trillion over 10 years, something lawmakers are now scrambling to reverse before they take effect in 2013.
Standard & Poor's downgraded the U.S. credit rating as a result of the debt ceiling fight.
"We're not going to go through this every 60 or 90 days," Senate Majority Whip Dick Durbin (D-Ill.) said Wednesday. "It would be devastating to our economy with this kind of uncertainty, that they would threaten to shut down the government or the economy every 60 to 90 days. That may be a tea party dream but it's a nightmare for our economy."
Carrie Budoff Brown and Steven Sloan contributed to this report.
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