A big disconnect as 'fiscal cliff' clock ticks

By Andrew Taylor, Associated Press Published: Nov 27, 2012 at 7:33 PM PDT Last Updated: Nov 27, 2012 at 9:13 PM PDT
A big disconnect as 'fiscal cliff' clock ticks
Senate Majority Leader Harry Reid of Nev. speaks with reporters on Capitol Hill in Washington, Tuesday, Nov. 27, 2012, following a Democratic strategy session. (AP Photo/J. Scott Applewhite)

WASHINGTON (AP) - Republicans' newfound willingness to consider tax increases to avert the "fiscal cliff" comes with a significant caveat: larger cuts than Democrats seem willing to consider to benefit programs like Medicare, Medicaid and the president's health care overhaul.

The disconnect on benefit programs, coupled with an impasse between Republicans and the White House over raising tax rates on upper-bracket earners, paints a bleak picture as the clock ticks toward a year-end fiscal debacle of automatic spending increases and harsh cuts to the Pentagon and domestic programs.

Democrats emboldened by the election are moving in the opposite direction from the GOP on curbing spending, refusing to look at cuts that were on the bargaining table just last year. Those include any changes to Social Security, even though President Barack Obama was willing back then to consider cuts in future benefits through lower cost-of-living increases. Obama also considered raising the eligibility age for Medicare, an idea that most Democrats oppose.

"I haven't seen any suggestions on what they're going to do on spending," a frustrated Sen. Orrin Hatch, R-Utah, said Tuesday. "There's a certain cockiness that I've seen that is really astounding to me since we're basically in the same position we were before."

Well, says Obama's most powerful ally on Capitol Hill, the Democrats are willing to tackle spending on entitlement programs if Republicans agree to raise income tax rates on the wealthiest Americans — a nonstarter with Republicans still in control of the House.

"We hope that they can agree to the tax revenue that we're talking about, and that is rate increases, and as the president's said on a number of occasions, we'll be happy to deal with entitlements," Senate Majority Leader Harry Reid, D-Nev., said Tuesday.

But Reid speaks only in the most general terms, wary of publicly embracing specific ideas like boosting Medicare premiums or raising the program's eligibility age.

At the White House, Obama met with a group of small business owners. Participants described the hour-long meeting as a listening session for Obama, with the business owners urging him to reach an agreement.

"They had one message for the president, which is they need certainty. Please get this deal done as soon as possible. They very much want consumers out there knowing that they're going to have money in their pockets to spend. That's why it's so important to pass the extension of the tax cuts for 98 percent of consumers, 97 percent of all small businesses," said Small Business Administration head Karen Mills.

Obama planned to meet Wednesday with more than a dozen leaders from large corporations, including Lloyd Blankfein of Goldman Sachs, Marissa Mayer of Yahoo!, Brian Roberts of Comcast and Arne Sorenson of Marriott.

Obama hits the road on Friday, visiting a Pennsylvania toy factory and broadcasting his case to extend current tax rates for all but those families making more than $250,000 a year.

Private White House negotiations with top aides to House Speaker John Boehner, R-Ohio, and others are cloaked in secrecy, with no evidence of headway.

"There's been little progress with the Republicans, which is a disappointment to me," Reid, a key negotiator, told reporters on Tuesday. "They talked some happy talk about doing revenues, but we only have a couple weeks to get something done. So we have to get away from the happy talk and start talking about specific things."

Republicans say it's Obama and his Democratic allies on Capitol Hill who are holding back, and they point to a balance of power in official Washington that is little changed by the president's re-election. Republicans still control the House, despite losing seats in the election. Democrats control the Senate.

"Democrats in Congress have downplayed the danger of going over the cliff and continue to rule out sensible spending cuts that must be part of any significant agreement to reduce the deficit," said Michael Steel, spokesman for House Speaker John Boehner, R-Ohio.

Just last year, Obama and top Democrats were willing during budget negotiations with Republicans to take politically risky steps such as reducing the annual inflation adjustment to Social Security retirement payments and raising the eligibility age for Medicare, which provides health care coverage to the elderly.

Now, with new leverage from Obama's election victory and a playing field for negotiations that is more favorable to Democrats than during the talks of the summer of 2011, Democrats are taking a harder line, ruling out any moves on Social Security and all but dismissing ideas like raising the eligibility age for Medicare from 65.

"The election spoke very strongly about the fact that the American people don't want to cut these programs that actually really sustain the middle class in America and allow people to become part of the middle class," said Sen. Tom Harkin, D-Iowa.

"I think they feel somewhat emboldened by the election," said GOP Rep. Tom Price of Georgia. "How could you not when your president is re-elected after running four straight years of trillion dollar-plus deficits?"

Indeed, Obama could be in position to blame Republicans if an impasse results in the government going over the fiscal cliff. Democrats already are portraying GOP lawmakers as hostage-takers willing to let tax rates rise on everyone if lower Bush-era tax rates are not extended for the top 2 percent to 3 percent of earners — those with incomes above $200,000 for individuals and $250,000 for joint filers.

"One thing Republicans have to realize — we're in much better shape in January," said Harkin, referring to a time when taxes would have already risen and Democrats would be offering to cut taxes for all but the wealthiest Americans. "Fiscal cliff? I don't care."

Obama's opening position in the negotiations calls for $1.6 trillion in higher taxes over the coming decade, balanced by just $340 billion in cuts to rapidly growing health care programs, generally taken from health care providers instead of beneficiaries. That balance would have to change for Republicans to sign onto any agreement.

Given the crunch of time and the complexity of issues such as tax reform and wringing savings from programs like Medicare, negotiators are working on a two-track process: an initial "down payment" of deficit cuts next month, coupled with work next year on overhauling the tax code and curbing entitlement programs.

Sen. Dick Durbin, D-Ill., a leading Senate liberal and a member of Obama's special 2010 deficit panel — which drafted a bold deficit reduction plan blending painful entitlement cuts with $2 trillion in higher tax revenues — weighed in with a demand that any short-term down payment avoid politically sensitive safety net programs.

"Progressives should be willing to talk about ways to ensure the long-term viability of Social Security, Medicare and Medicaid, but those conversations should not be part of a plan to avert the fiscal cliff," Durbin said in a speech at the liberal Center for American Progress think tank in Washington.

Copyright 2012 The Associated Press.

Watch a short video below on how going over the edge of the 'cliff' will affect you (by income level)

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