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Progress seen in last-minute 'fiscal cliff' talks (+video)

By Julie Pace

Associated Press

Published: Monday, Dec. 31 2012 12:00 a.m. MST

Though the tax hikes and budget cuts would be felt gradually, economists warn that if allowed to fully take hold, their combined impact — the so-called fiscal cliff — would rekindle a recession.

"This whole thing is a national embarrassment," Sen. Bob Corker, R-Tenn., said Monday on MSNBC, adding that any solution Congress would swallow at this late stage would be inconsequential. "We still haven't moved any closer to solving our nation's problems."

In a move that was sure to irritate Republicans, Reid was planning — absent a deal — to force a Senate vote Monday on Obama's campaign-season proposal to continue expiring tax cuts for all but those with income exceeding $200,000 for individuals and $250,000 for couples.

In one sign of movement on Sunday, Republicans dropped a demand to slow the growth of Social Security and other benefits by changing how those payments are increased each year to allow for inflation.

Obama had offered to include that change, despite opposition by many Democrats, as part of earlier, failed bargaining with House Speaker John Boehner, R-Ohio, over a larger deficit reduction agreement. But Democrats said they would never include the new inflation formula in the smaller deal now being sought to forestall wide-ranging tax boosts and budget cuts, and Republicans relented.

"It's just acknowledging the reality," Sen. Susan Collins, R-Maine, said of the GOP decision to drop the idea.

There was still no final agreement on the income level above which decade-old income tax cuts would be allowed to expire. While Obama has long insisted on letting the top 35 percent tax rate rise to 39.6 percent on earnings over $250,000, he'd agreed to boost that level to $400,000 in his talks with Boehner. GOP senators said they wanted the figure hoisted to at least that level.

Senators said disagreements remained over taxing large inherited estates. Republicans want the tax left at its current 35 percent, with the first $5.1 million excluded, while Democrats want the rate increased to 45 percent with a smaller exclusion.

The two sides were also apart on how to keep the alternative minimum tax from raising the tax bills of nearly 30 million middle-income families and how to extend tax breaks for research by business and other activities.

Republicans were insisting that budget cuts be found to pay for some of the spending proposals Democrats were pushing.

These included proposals to erase scheduled defense and domestic cuts exceeding $200 billion over the next two years and to extend unemployment benefits. Republicans complained that in effect, Democrats would pay for that spending with the tax boosts on the wealthy.

"We can't use tax increases on anyone to pay for more spending," said Sen. Kay Bailey Hutchison, R-Texas.

Both parties also want to block an immediate 27 percent cut in reimbursements to doctors who treat Medicare patients. Republicans wanted to find savings from Obama's health care bill as well as from Medicare providers, while Democrats want to protect the health care law from cuts.

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Eds: Associated Press writers David Espo, Andrew Taylor, Robert Burns and Josh Lederman contributed to this report.

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