Obama to Boehner: No Fiscal Cliff Deal Without Tax Rate Increases

Entitlement Savings Remain Elusive

President Barack Obama told Speaker of the House John Boehner Thursday that there would be no agreement to avert the "fiscal cliff" unless tax rates are increased on those making more than $250,000 per year. Boehner expressed concern that Democrats have shown no willingness to reduce the rate of growth in entitlement spending.

The two leaders at the center of the negotiations, Boehner and Obama, spoke for about minutes Wednesday night according to aides. In that conversation, Obama insisted on tax rate increases for those making more than $250,000 per year, according to Politico. Also, on Thursday, Boehner met for 45 minutes with Treasury Secretary Timothy Geithner, who is leading the White House negotiations. Boehner emerged from those meetings skeptical that a deal could be reached.

"No substantive talks have been made in talks between the White House and the House over the last two weeks," Boehner said in a press conference after the meeting with Geithner.

Boehner also complained that while he has made concessions on tax revenue, Democrats have not agreed to any spending cuts. Borrowing some of Obama's language during his presidential campaign, Boehner said that only Republicans have offered a "balanced plan" (both revenue increases and spending cuts) while Democrats only want revenue increases.

"Now I've made clear that we've put real concessions on the line by putting revenues on the table right up front. Unfortunately, many Democrats continue to rule out sensible spending cuts that must be part of any significant agreement that will reduce our deficit," Boehner said.

Boehner has said that the revenue increases should come from tax reform (eliminating deductions and credits) instead of tax rate increases. Democratic leaders have insisted that tax rate increases on the upper income must be part of any agreement to avoid the fiscal cliff.

The standoff between the two sides, according to Politico, is due to each side wanting to other side to make specific proposals first on, for instance, which deductions should be eliminated or which cuts to make in Medicare.

Privately, Democratic negotiators want any cuts in the rate of growth in Medicare to begin in 10 years. This will likely prove to be a major sticking point for Republicans because the tax increases go into effect right away.

When deficit reduction plans have been negotiated that way in the past (current tax increases with promises of future spending cuts), Republicans argue, they always end up with the tax increases but the spending cuts never materialize.

With Obama's re-election, Republicans are in a difficult negotiating position. Going over the fiscal cliff will likely be more bearable to Democrats than Republicans, and most Americans would likely blame Republicans if there were not deal. The main advantage for Republicans is that Obama does not want the first year of his second term to be tarnished with a recession.