Republicans make budget counter-offer

John Boehner has countered the White House's offer to avert the fiscal cliff with a package that would cut spending by $1.2tn.

Story highlights

  • GOP presents $2.2tn deficit reduction package over 10 years - including $800bn in new taxes
  • The package includes $1.2tn in cuts to entitlement programmes and other budget measures
  • The White House last week proposed a target of $1.6tn in new revenue, which Republicans rejected as 'non-serious'
  • The White has rebuffed the counter-offer, saying it 'includes nothing new'

Republicans in the House of Representatives delivered a counter-offer to President Barack Obama to avert the fiscal cliff, offering some hope of movement in the delicate budget negotiations though the sides remain far from a deal.

In a letter to Mr Obama, John Boehner, the speaker of the House of Representatives, presented a $2.2tn deficit reduction package over 10 years, including $800bn in new taxes -- much lower than the $1.6tn target for new revenue proposed by the president last week.

Under the Republican plan -- which was immediately rejected by the White House -- the new taxes are to be achieved through broad tax reform, including limiting deductions, rather than an increase in tax rates on the wealthy, which is what Mr Obama is seeking.

The proposal by House Republicans also includes $600bn in savings from government healthcare programmes, which may be tough for Democrats to stomach, as well as $600bn in further spending cuts from a variety of other budget measures.

One of the more contentious cuts presented by Republicans would increase the eligibility age for Medicare, the medical insurance plan for seniors.

In addition, Republicans are calling for revisions to the government's measure of inflation, which would save $200bn over a decade and limit benefits in Social Security, the pension programme.

"If you are agreeable to this framework, we are ready and eager to begin discussions about how to structure these reforms so that the American people can be confident that these targets will be reached," said Mr Boehner, who signed the letter along with other senior House Republicans.

But soon after, Dan Pfeiffer, the White House communications director, rebuffed the Republican letter, saying it "does not meet the test of balance".

"Their plan includes nothing new and provides no details on which deductions they would eliminate, which loopholes they will close or which Medicare savings they would achieve," Mr Pfeiffer said. "Independent analysts who have looked at plans like this one have concluded that middle class taxes will have to go up to pay for lower rates for millionaires and billionaires," he added.

The Republican plan did not allow for any increase in the US borrowing limit, which will be hit in February and Mr Obama has asked Congress to raise permanently.

The counterbid by House Republicans followed four difficult days in the efforts to reach an agreement to unwind the $600bn in automatic tax hikes and spending cuts due to hit the US economy on January 1, threatening a new recession. Tim Geithner, the treasury secretary, presented the White House's opening offer on Thursday in meetings on Capitol Hill but this was roundly dismissed by Republicans, leading to a stalemate in the talks.

Despite the negative White House reaction to the Republican counterbid, its release suggests that efforts to reach common ground might be renewed in the coming days. Mr Obama has only met Mr Boehner and other congressional leaders once at the White House since winning re-election a month ago.

The Republican plan is modelled around a proposal made by Erskine Bowles, a former White House chief of staff under Bill Clinton, who attempted in vain to spur a special committee of lawmakers into a fiscal compromise in November 2011.

But Mr Bowles disavowed it on Monday afternoon. "I simply took the midpoint of the public offers put forward during the negotiations to demonstrate where I thought a deal could be reached at that time," said Mr Bowles, who pointed out that "circumstances have changed since then".

A longstanding confidant to Mr Obama called Mr Boehner's offer "skeletal" and said that without some concession on tax rates that the talks would remain at an impasse.

"I don't think the time is ripe for a deal -- they need more of a crisis environment to move towards a deal, and you won't have that until just before Christmas, "he said.

This person said Mr Obama would be flexible about the amount that rates for the wealthiest two per cent would rise and the income level at which they would cut in, but they had to be higher as part of any deal.

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