As congressional leaders exited the White House today after an opening round of discussions with President Obama, the mood seemed upbeat and lawmakers relied heavily on optimistic metaphors.
Stocks initially reversed their downward slide Friday after House Speaker John Boehner, R-Ohio, deemed the talks “constructive,” a line that was echoed throughout the day and repeated later by White House Press Secretary Jay Carney. Senate Majority Leader Harry Reid, D-Nev., said, “We have the cornerstones of being able to work something out.”
But it’s the masonry around the cornerstone that counts in these negotiations. The public comments were reassuring, yet added little to what the country already knows.
Lawmakers have indicated thus far that they have a very rudimentary blueprint for reducing the deficit and avoiding the fiscal cliff of the more than $600 billion worth of scheduled tax hikes and spending cuts next year. It involves more revenues and less spending, the basic elements of any budget.
The critical question of “how” to increase revenues and lower spending—the real source of tension between Democrats and Republicans—wasn’t part of the post-meeting wrap-up on the White House lawn. Instead, the first round of talks existed to provide an iota of relief to voters who have been exhausted by the past two years of partisan dysfunction.
“I was focusing on how we send a message of confidence to consumers, to the markets in the short-run,” House Minority Leader Nancy Pelosi, D-Calif., said.
The group plans to meet again with Obama after the Thanksgiving holiday. That leaves three major questions in the weeks that follow as a bargain gets hashed out to slash as much as $4 trillion from the deficits projected over the next decade.
Will Republicans accept a tax hike on the rich?—This is quite literally the $1 trillion question.
Whereas congressional Republicans are willing to close loopholes in order to lower income tax rates, the president wants to raise rates for wealthier Americans and cap their itemized deductions to generate $1.6 trillion in additional revenues over the next decade.
When Boehner said Friday that he put “revenues on the table,” it’s unclear whether he means actual tax increases or the expectation that reforming the tax code will lead to more economic growth and, thus, higher receipts.
Congressional leaders—including Boehner—have portrayed higher taxes as an anathema to economic growth, but since Obama’s election some Republicans have suggested settling with Democrats by increasing taxes on Americans with incomes greater than $1 million.
Donald Marron, director of the Tax Policy Center, explained what Obama is offering them. First, if no deal is reached the tax breaks enacted by George W. Bush expire for everyone and income taxes jump by a total of $205 billion.