WASHINGTON — House Speaker John Boehner has offered to push any fight over the federal debt limit off for a year, a concession that would deprive Republicans of leverage in the budget battle but is breathing new life into stalled talks over the year-end “fiscal cliff.”
The offer came Friday, according to people in both parties familiar with the talks, as part of the latest effort by Boehner, R-Ohio, to strike a deal with President Barack Obama to replace more than $500 billion in painful deficit-reduction measures set to take effect in January.
With the national debt already bumping up against a $16.4 trillion cap set last year, Congress risks a government default unless it acts to raise the debt ceiling in the next few months. Some Republicans had argued that party leaders should use the threat of default to demand additional spending cuts from Obama.
Boehner’s offer signals that he expects a big deal with sufficient savings to meet his demand that any debt limit increase be paired dollar-for-dollar with spending cuts. That would permit him to keep a key vow to his party — and head off a potentially nasty debt-limit fight — at least until the end of next year.
“Our position has not changed,” Boehner spokesman Michael Steel said Sunday. “Any debt limit increase would require cuts and reforms of a greater amount.”
Boehner’s offer also includes a proposal to raise tax rates for millionaires, generating as much as $460 billion over the next decade — about half what Obama has demanded from the wealthy, according to official estimates.
The White House rejected the offer, saying it would raise too little cash to significantly dent record budget deficits and do nothing to extend emergency unemployment benefits into the new year, according to a Democrat familiar with the talks.
But the tax offer was viewed as a breakthrough, the Democrat said. Senior White House officials remained in contact with Boehner’s staff throughout the weekend in a sign that serious negotiations had finally begun after weeks of stalemate and partisan posturing.
“Recognizing the importance of raising tax rates is a big, positive and important step,” said former White House economic adviser Lawrence Summers, who emphasized that he was not speaking for the Obama administration.
“The evaluation of any deal should depend on how much total revenue is raised, whether adequate demand is maintained to sustain the recovery and whether we are restoring confidence or just marking time until another debt-limit crisis,” Summers said.
Boehner and Obama have not spoken directly since the Friday afternoon phone call when Boehner extended his latest offer. With Obama in Newtown, Conn., to attend a Sunday-night service for victims of Friday’s elementary school massacre, aides were uncertain when their next meeting would take place.
All told, Boehner’s proposal would generate about $2 trillion in savings over the next decade, split equally between new taxes and spending cuts, according to a Republican familiar with the talks. On the tax side, as much as $460 billion would be locked in by letting the George W. Bush-era tax cuts expire on income over $1 million a year.
That would boost the top rate from the current level of 35 percent to 39.6 percent for about 400,000 families in the 2013 tax year. The rest of the tax revenue would come through a rewrite of the tax code next year aimed at limiting deductions and other tax breaks.
The Bush tax cuts would be extended for everyone else under the proposal, averting the biggest of several automatic tax hikes set to rattle the economy in January.
In exchange for the higher rates for millionaires, Boehner is demanding changes to federal health and retirement programs, which are projected to be the biggest drivers of future federal borrowing. Boehner wants $1 trillion in total savings, starting with adoption of a less generous way of calculating inflation that would save $200 billion over the next decade — about two-thirds of it by reducing Social Security cost-of-living adjustments.
Obama has offered $600 billion in spending cuts, with $350 billion coming from health programs and none from Social Security. Many congressional Democrats adamantly oppose dragging the program into the year-end talks.
Still, if Republicans make an offer on higher tax revenue that Democrats consider big enough, senior Democrats have signaled that they are open to the change in how inflation is calculated for entitlement programs, known as chained CPI.
The tax issue also remains problematic. Obama has called for the Bush tax cuts to expire for income over $250,000 a year, a move that would raise about $830 billion over the next decade, according to the Joint Committee on Taxation. He also wants higher taxes on inherited estates and new limits on tax breaks for the wealthy, to bring total new taxes to $1.6 trillion.
White House officials last week dropped their tax demand to $1.4 trillion and may be willing to go lower, Democrats said. But setting the income threshold for tax rate hikes at $1 million, as Boehner proposed, would sacrifice too much money, they said. Democrats argue that a threshold of $375,000 or even $500,000 would be more appropriate.
If a pact were reached, people in both parties say it likely would include a postponement of $100 billion in automatic spending cuts from the Pentagon and other agency budgets next year.
With many lawmakers still hoping for a resolution by Christmas, people close to the talks cautioned that much work remains to be done before Obama and Boehner could seal a deal.
