U.S. House of Representatives Speaker John Boehner, lead negotiator for the Republicans, took the first step late Friday in making a fiscal cliff deal when he agreed to accept a tax hike for the wealthiest Americans (those making more than $1 million).
Boehner also agreed to a one-year increase to the debt ceiling.
In return, the GOP wants U.S. President Barack Obama to implement steep cuts to entitlement spending, including Social Security, Medicare and Medicaid.
"Boehner has now accepted the premise of higher rates. So now we're just arguing over details. I think it's a significant step," Greg Valliere, chief political strategist at Potomac Research Group told Reuters.
Fiscal Cliff Deal: President Obama's Turn
Until now, Republicans have been adamant on taxes, so the recent concession was a huge move from the GOP.
President Obama has maintained that if and when Republicans accepted a tax rate increase for high-income Americans, he would be willing to negotiate on other issues.
This represents a huge shift in fiscal cliff deal-making: Instead of pointless back-and-forth, the president must now make a reasonable counter offer.
Sean West, U.S. policy analyst at the political risk consultancy firm Eurasia Group wrote in a note to clients, "Boehner's offer to allow tax rates to go up for taxpayers earning over $1 million fundamentally transforms fiscal cliff negotiations. The political burden is now shifted back to the president, who must be willing to take on his party in order to get a deal Boehner can ultimately pass. We do not think the president will overreach: Obama will work with Boehner to get a deal."
If Team Obama does not agree on deep spending cuts to entitlement programs in exchange for a tax-rate hike on the wealthy, the GOP will be unyielding about increasing the $16.4 trillion debt limit come February without revamping Social Security and Medicare. The country's debt is just $63 billion away from the legal borrowing limit.
Republican lawmakers want to raise the eligibility age for Medicare from 65 to 67, and link Medicare to recipient's income, making affluent retirees shell out for their care.
But reforms and cuts affecting benefits for senior citizens and other participants in entitlement programs face tough opposition from advocacy groups, and will weigh heavily on the president's ultimate decision.
So far the president has only offered about $400 billion in 10-year entitlement savings through small revisions.
Fiscal Cliff Deal Far From Certain
While it appears as if we are inching closer to an agreement, Boehner's camp insists no deal has been inked.
"The lines of communication remain open, but there is no agreement nor is one imminent," Boehner's spokesman Michael Steel said in a statement.
CNN reported a source familiar with the talks called Boehner's offer "insufficient on revenues and rates."
Still, the White House deems it "progress" and repeated Steel's statement, repeating that the "lines of communication are open," said source shared with CNN.
A fiscal cliff deal by Christmas still looks unlikely, but a deal by Dec. 31 could be within reach.
Related Articles and News:
- Money Morning:
Three Fiscal Cliff Moves to Make Right Now
- Money Morning:
Five Ways to Turn the Fiscal Cliff Into an Outstanding Investment Opportunity
- Money Morning:
Five With Fitz: What to Expect If We Go Over the Fiscal Cliff
Analysis: Boehner opens door to tax hikes, shifts fiscal cliff talks
- Business Insider:
Fiscal Cliff Breakthrough: Boehner Offers To Include The Debt Ceiling Hike In Deal Along With Higher Taxes
Boehner's offer heats up fiscal cliff talks.