Obama, Boehner spar as ‘fiscal cliff’ talks enter key phase

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President Barack Obama and Republican House Speaker John Boehner entered a decisive phase Tuesday in their talks to avoid the so-called fiscal cliff. But any progress made privately was coupled with conflict in public, as Boehner unveiled an alternative to the deal he has been negotiating with the president -- a back-up plan immediately rejected by the White House and Congressional Democrats.

The so-called Plan B alternative would extend Bush-era tax cuts on income up to $1 million, while letting rates rise above that level. The plan would not alter the so-called “sequester” that would trigger deep spending cuts, notably to the military, if he and Obama don't reach a deal.

At issue are the Bush-era tax cuts which are set to expire at the end of the year.

Obama wants to extend them for middle income earners but let them expire for wealthy tax payers. Obama campaigned for re-election saying higher income earners must pay more in order to cut the nation's deficit and help fund popular programs. Many Republicans say they will not vote for a deal that would raise taxes on anyone, even the wealthiest Americans.

Absent a breakthrough, Americans at all income levels will suffer across-the-board income tax hikes on January 1 and deep cuts to domestic and military spending will go into effect. Experts warn that the combination could plunge the fragile economy into a new recession.

Speaking to reporters on Tuesday, Boehner said Plan B was only intended to be a fallback if talks with Obama fail. Negotiations with the president on a comprehensive deal will continue to move forward, Boehner said.

“I continue to have hope that we can reach a broader agreement with the White House that would reduce spending as well as have revenues on the table,” Boehner told reporters. “But at this point, having a backup plan to make sure that as few American taxpayers are affected by this increase as possible, moving down that path is the right course of action for us.”

The White House summarily rejected the speaker's alternative plan. Press secretary Jay Carney said Obama "is not willing to accept a deal that doesn't ask enough of the very wealthiest in taxes and instead shifts the burden to the middle class and seniors."

Still, Boehner's Plan B proposal offers some important cover for the speaker and his party.

Polls show Americans overwhelmingly side with Obama on ending tax cuts for the rich and to blame Republicans if negotiations fail. If Republicans support Plan B and its tax hike on millionaires, it would put at least some in the party on record as being willing to raise some top tax rates and allow Boehner to rebut charges that his party was willing to hold tax cuts for middle class earners hostage.

The plan could also serve notice that the president’s original demands can’t pass Congress. And if it fails because Democrats hold firm and conservatives balk at raising any taxes, it could push Republicans to support any final compromise Boehner negotiates with the White House.

In a sign that a compromise of some sort could be in the works, Boehner privately briefed House Republicans on the status of negotiations with Obama Tuesday even as he told them he would also pursue Plan B. White House negotiator Rob Nabors did the same for Democrats in the House and Senate.

Boehner laid out more detail in an early evening meeting with his frequently fractious rank-and-file, many of whom have said they oppose any tax increase. Republican leaders then planned to encourage (and measure) support for a variety of tax cut scenarios before bringing something to the floor on Thursday.

Reaction to Plan B on Capitol Hill wasn't promising.

Senate Majority leader Harry Reid said it wouldn't pass the Democratic-controlled chamber. "Speaker Boehner should focus his energy on forging a large-scale deficit reduction agreement,” Reid said.

Senate Minority Leader Mitch McConnell treated the proposal cautiously, saying he opposes tax hikes in principle but stressing “we’ll deal with the package when it comes over.”

For her part, House Democratic Leader Nancy Pelosi said “Plan B” stood for “befuddled.”

The back and forth came after Obama delivered his latest offer to Boehner late Monday which included a sizable concession. The president now says he’d accept rates going up on income above $400,000, rather than the $250,000 for families he has insisted.

Obama's new proposal also calls for raising $1.2 trillion in new tax revenues on individual income — down from $1.4 trillion in his previous proposal and $1.6 trillion from his opening gambit.

His offer would limit itemized deductions to 28 percent while restoring the estate tax to 2009 levels. That means that assets above the exemption level of $3.5 million would be taxed at 45 percent.

Obama also offered $800 billion in spending cuts -- some $400 billion in health outlays, $200 billion in mandatory spending in other areas, and $200 billion in discretionary cuts including $100 from the Pentagon.

He's also seeking $130 billion in savings from adopting a new, less generous mechanism for adjusting Social Security benefits for inflation. To appease liberal Democrats like Pelosi, who has warned against any roll-back of Social Security benefits, the White House proposed unspecified "tweaks" that will protect "the poorest social security recipients," a White House source said.

Obama counts another $290 billion in interest payment savings which Republicans consider an accounting gimmick, not a cut.

The speaker, in turn, seems ready to blunt a Republican push to raise the eligibility age for Medicare – something liberal Democrats vowed would kill any compromise. “I don't believe it's an issue that has to be dealt with between now and the end of the year,” Boehner said.

Obama's offer would also curtail Republican power to use fights over raising the country's debt ceiling to demand spending cuts. It would extend the borrowing authority for two years, while letting Congress take largely symbolic votes disapproving of the step.

Boehner reportedly offered a year-long extension in his previous offer, but conservatives in his caucus are reluctant to abandon what they say as their best leverage to force future cuts.