Boehner holds troops in line on 'fiscal cliff' deal talks

By Richard Cowan and Mark Felsenthal

WASHINGTON | Tue Dec 18, 2012 11:37pm IST

WASHINGTON (Reuters) - A deal to avert a "fiscal cliff" of U.S. tax hikes and spending cuts looked closer on Tuesday after House of Representatives Speaker John Boehner kept the support of his Republican colleagues for compromises in talks with President Barack Obama.

Despite concerns of a revolt by Republicans in the House, Boehner emerged from a meeting with his members unscathed and pledged to press forward on negotiations with the White House. Boehner's concession last week to consider higher tax rates on the wealthiest Americans - an idea long fought by his party - signaled that a deal was possible ahead of a year-end deadline.

Republican Representative Darrell Issa, a key committee chairman, said House Republicans "were supportive of the speaker. ... I saw no one there get up and say, 'I can't support the speaker.'" Boehner is the top Republican in Congress.

Boehner told reporters after meeting his caucus - which includes a core of fiscal conservatives aligned with the Tea Party movement opposed to tax hikes - that Obama's latest offer on taxing the wealthiest Americans is "not there yet," but he remained hopeful of an agreement.

In a major concession to Republican demands, Obama on Monday offered to set a $400,000 threshold for incomes that would face tax increases with the expiration at the end of the year of low tax rates enacted under former President George W. Bush.

Obama had previously insisted on setting the threshold at $250,000. Boehner has been seeking a level of $1 million. Analysts said the two may compromise on $500,000.

Obama and Boehner are working to avert steep tax hikes and deep spending cuts set to begin taking effect next month. Known as the "fiscal cliff," the measures could trigger another recession, economists warn.

As negotiations have largely overcome ideological differences and turned to increasingly narrow disagreements over numbers, markets turned upward on hopes of a deal.

World shares moved toward a three-month high on Tuesday and weakened appetite for safe-haven bonds and the dollar. The benchmark Dow Jones industrial average of 30 major U.S. industrial stocks was up less than 1 percent. The gain followed a steep rally in the previous session.

'PLAN B'

As both parties tried to digest details of a possible agreement, Boehner put forward what he called "Plan B" legislation. If brought to the House floor, the bill would let Republicans show that they worked to keep income tax rates low on most Americans. For weeks they have feared a public backlash against them if tax rates rise on January 1.

Boehner said a vote on a Republican bill along these lines could come as early as this week in the House.

Obama could face unrest from rank and file fellow Democrats. Liberal Democrats are likely to oppose a key compromise he has offered to permit shrinking cost-of-living increases for all but the most vulnerable beneficiaries of the Social Security retirement program.

The president's proposal calls for using a different formula, known as "chained Consumer Price Index," to determine the regular cost-of-living increases and essentially reduces benefits.

Obama on Monday conceded allowing the extension of low income tax rates begun during the Bush administration for incomes up to $400,000 per household. He had previously insisted setting that cut-off at $250,000.

Boehner had earlier conceded to agreeing that Bush-era tax rates can expire for the wealthiest Americans, after opposing for months tax rate increases of any kind. He proposed setting a $1 million income threshold for raising rates.

Some analysts expect a compromise could come at $500,000. "That still looks like a safe bet," said Greg Valliere, chief political strategist at Potomac Research Group.

Obama also moved closer to Boehner on the proportion of a 10-year deficit reduction package that should come from increased revenue, as opposed to cuts in government spending. Obama is now willing to accept a revenue figure of $1.2 trillion, down from his previous $1.4 trillion proposal.

Boehner's latest proposal calls for $1 trillion in new tax revenue from higher tax rates and the curbing of some tax deductions taken by high-income Americans.

Missing from Obama's latest offer was any extension of the so-called "payroll tax holiday" that ends on January 1, bringing an immediate tax increase on wage earners.

A Republican aide who asked not to be identified said that "conceptually" there was agreement to make permanent changes in the tax code, with some of those changes taking effect at the start of 2013 and others at the beginning of 2014.

A thorough cliff-avoiding agreement could immediately substitute more targeted spending cuts for the indiscriminate slashing of programs known as "sequestration."

Possible plans to produce cuts in spending for Medicare and Medicaid, the government health insurance programs for seniors and low-income Americans respectively, remained to be discussed.

Boehner and Obama have made headway on the politically explosive question of the president's ability to avoid constant battles over raising the nation's debt ceiling, which controls the level of borrowing by the government. Boehner is ready to give Obama a year of relative immunity from conservative strife over the debt ceiling, while Obama is pushing for two years.

(Additional reporting by David Lawder, Kim Dixon and Fred Barbash; Writing by Kevin Drawbaugh; Editing by Alistair Bell and Will Dunham)

Source: http://feeds.reuters.com/~r/reuters/INbusinessNews/~3/DVZqcQMuHaI/usa-fiscal-idINDEE8BH0CF20121218

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