Charles Dharapak, Associated Press
WASHINGTON — Bluster and hot rhetoric aside, the White House and House Republicans have identified areas of significant overlap that could form the basis for a final agreement after "fiscal cliff" posturing gives way to hard bargaining.
Both sides now concede that tax revenue and reductions in entitlement spending are essential elements of any deal. If the talks succeed, it probably will be because House Speaker John Boehner yields on raising tax rates for top earners and the White House bends on how to reduce spending on Medicare and accepts some changes in Social Security.
The White House and Boehner kept up the ridicule of each other's negotiating stances on Tuesday. But beneath the tough words were the possible makings of a deal that could borrow heavily from a near-bargain last year during debt-limit negotiations.
Then, President Barack Obama was willing to reduce cost-of-living increases for Social Security beneficiaries and increase the eligibility age for Medicare, as Boehner and other top Republicans have demanded. On Tuesday, Obama did not shut the door on Republican ideas on such entitlement programs.
"I'm prepared to make some tough decisions on some of these issues," Obama said, "but I can't ask folks who are, you know, middle class seniors who are on Medicare, young people who are trying to get student loans to go to college, I can't ask them to sacrifice and not ask anything of higher income folks."
"I'm happy to entertain other ideas that the Republicans may present," he added in an interview with Bloomberg Television.
At the core, the negotiations center on three key points: whether tax rates for upper income taxpayers should go up, how deeply to cut spending on entitlements such as Medicare and how to deal with raising the government's borrowing limit early next year.
White House spokesman Jay Carney dismissed Boehner's proposals as "magic beans and fairy dust."
Boehner countered: "If the president really wants to avoid sending the economy over the fiscal cliff, he has done nothing to demonstrate it."
Tax rates have emerged as one of the most intractable issues, with Obama insisting the rates on the top 2 percent of earners must go up and Boehner standing steadfast that they must not.
Boehner, instead, has proposed raising $800 billion through unspecified loophole closings and limits on tax deductions.
On Tuesday, the president said he would consider lowering rates for the top 2 percent of earners — next year, not now — as part of a broader tax overhaul effort that would close loopholes, limit deductions and find other sources of government revenue. "It's possible that we may be able to lower rates by broadening the base at that point," Obama said.
On Medicare and Social Security, the Republican proposals would do relatively little to curb the deficit over the next decade, but the impact would grow over the longer term.
Raising the Medicare retirement age from 65 to 67, for instance, would wring $148 billion from the program over 10 years, according to a Congressional Budget Office estimate last year, about one-fourth of the savings House Republicans hope to claim from federal health programs.
Another idea that gained currency during the Obama-Boehner talks last year would change the annual inflation measure used for Social Security cost-of-living increases and the indexation of tax brackets for inflation.
Many economists and government budget specialists believe the system is a more accurate measure of inflation because it takes into account changes in purchasing behavior
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