Fiscal talks inch ahead

| Sunday, Dec. 30, 2012, 8:57 p.m.

WASHINGTON — The White House and congressional leaders worked overtime on Sunday to ward off tax increases set to kick in for most Americans, with Republican leaders signaling a grudging acceptance that some taxes will go up and the two parties narrowing their differences over who should pay higher taxes.

After a midday stumble, the sides worked in private, debating a slimmed-down package that would increase taxes for top wage earners — perhaps hitting incomes between $360,000 and $450,000 ­­— while preserving tax breaks for tens of millions of other Americans.

“There is still significant distance between the two sides, but negotiations continue,” Senate Majority Leader Harry Reid, D-Nev., said on the Senate floor after a closed door meeting with fellow Democrats. “There's still time left to reach an agreement, and we intend to continue negotiations.”

The signs of progress late Sunday occurred after a day of drama in which talks appeared to hit an impasse. Reid suggested he could not get the White House to sign off on a counter-offer, and Senate Minority Leader Mitch McConnell, R-Ky., made an open appeal to old Senate colleague, Vice President Joe Biden, to help get talks moving again.

The talks between Reid and McConnell broke down early Sunday over a Republican proposal to curb the growth of benefits under entitlement programs such as Social Security and Medicare.

Unable to get a response from Reid, McConnell turned to Biden, who helped broker tax cut deals in 2010 and the debt ceiling deal in 2011. Biden and McConnell spoke more than three times by phone, aides said. Republicans eventually dropped their proposal for entitlement changes as part of the potential agreement.

Unless Congress acts, a one-two dose of automatic tax increases and spending cuts will kick in with the new year, affecting nearly every taxpayer and many government programs.

The tax increases would occur as all of the Bush-era tax cuts expire on Tuesday. The across-the-board spending cuts would kick in days later, part of a package that Congress enacted thinking that it would force members to enact more carefully designed cuts.

Democrats proposed extending only those Bush-era tax cuts on individual income below $200,000 and family income below $250,000, raising taxes on income above that. Republicans had been pushing to extend all of the tax cuts.

But late Sunday, Republicans offered to sign off on raising taxes on individuals earning more than $450,000 while Democrats countered with $360,000, several senators said.

Other issues being considered as part of a possible package included extending unemployment benefits for millions of Americans; preventing about 30 million Americans from having to pay the alternative minimum tax; keeping Medicare payments to doctors at the current rate; and extending tax breaks offered to companies and individuals, according to a congressional aide familiar with the talks but not authorized to speak publicly.

The sides continued to debate the estate tax, which has been steadily dropping during the past 11 years while the amount exempt from the tax has jumped. Democrats want to raise the 35 percent level to 45 percent and lower the exemption, now about $5.2 million per person, to $3.5 million. Republicans have indicated they want current rates to prevail.

Any agreement would still face significant hurdles, with conservatives in the Senate and House complaining about raising any taxes and ignoring the nation's escalating deficit.

“The biggest obstacle we face is that President Obama and Majority Leader Reid continue to insist on new taxes that will be used to fund more new spending, not for meaningful deficit reduction,” said Sen. Jeff Sessions, R-Ala. “The result is nearly $9 trillion in new debt accumulation over the next decade, which represents virtually no change from current projections.”

Obama, in an unusual Sunday morning TV appearance, lambasted Republicans for letting the crisis reach the final days.

“We have been talking to the Republicans ever since the election was over. They have had trouble saying yes to a number of repeated offers,” Obama said on NBC's “Meet the Press.” “What's been holding us back is the dysfunction here in Washington.”

Republicans criticized Obama for his partisan remarks as the parties were still trying to work out a deal.

“Americans elected President Obama to lead, not cast blame,” House Speaker John Boehner, R-Ohio, said in a written statement. “The president's comments today are ironic, as a recurring theme of our negotiations was his unwillingness to agree to anything that would require him to stand up to his own party.”

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