Over the week-end Republican House Speaker John Boehner (R-Ohio) took an important step in “fiscal cliff” talks with the White House and inched towards the direction of President Obama’s initial proposal to increase tax rates on the wealthiest Americans while still working towards a compromise to avoid nearly $600 billion of tax increases and spending cuts that are set to take effect in January 2013.
Despite the new development in the “fiscal cliff” talks, Boehner’s proposal for raising tax rates on the wealthiest is still $750,000 away from the President Obama’s proposal.
Sources close to House Speaker Boehner (R-Ohio) over the week- end have signaled that that Boehner is now willing to increase tax rates for wage earners who earn above $1 million, according to Reuters.
President Obama still wants that tax rate increase benchmark to be set at $250,000 instead of Boehner’s higher proposal of $1 million.
If no compromise deal is reached before January 1st, the tax rates will automatically increase for all American wage earners in January 2013 with the top tax rate going to 39.6 percent, a level that was last experienced during the Clinton era and is notably higher the current level of 35 percent.
Boehner has agreed to increase his total tax revenue total to $1 trillion over 10 years, compared to Obama’s $1.4 trillion proposal that was recently revised lower from $1.6 trillion.
Some of the tax revenue needed to reach Boehner’s $ 1 trillion target- besides raising rates over $1 million- would be done through rewriting the tax code in 2013 and by slowing the inflation adjustments made to tax brackets.
Boehner is also offering to raise the debt ceiling in the government’s borrowing cap to help fund government spending for one year in exchange for Obama agreeing to $1 trillion in cuts from government medical benefit programs such as Medicare and a smaller inflation adjustment for Social Security benefits.
Boehner’s proposal would block the sequestration of automatic cuts across board in domestic spending and defense.
In terms of cuts, Obama has already offered $600 billion in spending cuts, with $350 billion coming in health care programs and none coming from Social Security.
Larry Summers, professor at Harvard and former United States Secretary of the Treasury under Clinton said on Bloomberg’s The Cliff Summit that any negotitation involves elements of compromise.
“But I think it is very important to understand that there has just been an election; the election delivered a relatively clear verdict” Summers said.
“It’s very important to understand that we had a negotitiation in 2011 that ended with the most radical set of cutbacks in discretionary spending that the country has seen in 50 years. And so with those two starting points, I think the the compomises are going to have to come primarily in the President’s direction” Summers said.