Despite talk of compromise, fiscal deal elusive

By JIM KUHNHENN
Associated Press

WASHINGTON (AP) — Talk of compromise on a broad budget deal greeted returning lawmakers Monday, but agreement still seemed distant as the White House and congressional Republicans ceded little ground on a key sticking point: whether to raise revenue through higher tax rates or by limiting tax breaks and deductions.

House Speaker John Boehner, R-Ohio, pressed his case for revenue derived by reducing tax loopholes rather than raising tax rates on wealthy taxpayers, as President Barack Obama insists.

Boehner, voicing the Republican stance, said: "The American people support an approach that involves both major spending cuts and additional revenue via tax reform with lower tax rates."

At the White House, Obama spokesman Jay Carney reiterated the president's pledge not to sign legislation that extends current tax rates to the top 2 percent of income earners — households with incomes over $250,000. "That is a firm position," Carney said.

Congress and Obama have until the end of the year to avoid across-the-board tax increases that would do away with rates set during the administration of President George W. Bush and restore higher tax rates in place during President Bill Clinton's administration when the economy was robust and the federal government had a budget surplus.

White House and congressional leadership aides said Obama spoke separately with House Speaker John Boehner and Democratic Senate Majority Leader Harry Reid over the weekend. The aides would not reveal details of the conversations. Obama last met with the bipartisan congressional leadership to discuss the fiscal cliff on Nov. 16. No new meetings have been announced.

Boehner and other GOP leaders planned to meet Wednesday with members of a bipartisan coalition of former members of Congress and business leaders that has advocated cuts in spending in major health care programs as well as changes in the tax code to raise more money but also to lower rates.

Obama met with some members of that same coalition earlier this month. Top officials from the U.S. Chamber of Commerce and from the Business Roundtable met with senior White House aides on Monday.

In addition to looming tax hikes, the new year could also result in steep spending cuts in defense and domestic programs. Lawmakers and the White House fear that such a combined "fiscal cliff" would undercut the military and set back an economic recovery. Republicans say that while they are open to revenue increases, Obama also has to agree to reductions in entitlement spending, particularly in massive health care programs such as Medicare and Medicaid.

Carney on Monday said Obama was open to changes in those programs, but said Obama does not want to address Social Security as part of the fiscal cliff discussions.

"The president has long made clear that he is open to discussions about strengthening Social Security as part of a separate track," Carney said, adding that Social Security is not contributing to the deficit.

Looking to buttress their case on taxes, White House economists warned Monday that the uncertainty of a potential hike in taxes next year for middle class taxpayers could hurt consumer confidence during the crucial holiday shopping season.

In a new report, President Barack Obama's National Economic Council and his Council of Economic Advisers said that if lawmakers don't halt the automatic increase in taxes for households earning less than $250,000, consumers might even curtail their shopping during the current holiday season.

"As we approach the holiday season, which accounts for close to one-fifth of industry sales, retailers can't afford the threat of tax increases on middle-class families," the report said.

Meanwhile, the stock market edged lower in the morning as the outcome of the budget talks remained inconclusive.

Retailers such as Macy's, Target and Saks were down, amid fears that consumers might cut back this season. But the National Retail Federation reported earlier that 247 million shoppers visited stores and shopping websites during the long Thanksgiving weekend, up 9 percent from a year ago. They spent an average of $423, up 6 percent.

The White House report also said a sudden increase in taxes for middle-income taxpayers would reduce consumer spending in 2013 by nearly $200 billion, significantly slowing the economic recovery.

The figures echo estimates by private forecasters and by the Congressional Budget Office.

According to the report, a married couple earning between $50,000 and $85,000 with two children would see a $2,200 increase in their taxes.

Congressional Republicans, led by Boehner, have said they are open to including discussions about additional revenue but have balked at any plan that raises tax rates on the wealthy. They argue that the higher rates would also hit some small businesses, stifling economic growth.

Instead, they have advocated changes in the tax code that would eliminate tax breaks and loopholes that primarily benefit the wealthy. Several key Republican lawmakers have also said they would not be bound by a no-tax-increase pledge that they have adhered to in the past.

Tennessee GOP Sen. Bob Corker is circulating a bill claiming $4.5 trillion in deficit savings over the coming decade, including $749 billion in higher tax revenue by capping itemized deductions at $50,000, a proposal that hits wealthier taxpayers the hardest.

Corker's plan — shared with the White House and congressional leaders — contains a roster of other budget proposals, including a less generous inflation adjustment for Social Security, and a gradual increase in Social Security eligibility to 68, and 67 for Medicare. Upper income earners also would pay more for Medicare.

But Carney said the tax revenue sought by Obama can't be achieved by simply restricting tax deductions.

"Math tells us that you can't get the kind of balanced approach that you need without having rates be part of the equation," he said. "We haven't seen a proposal that achieves that, a realistic proposal that achieves that."

Associated Press writer Andrew Taylor contributed to this report.

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