November 24, 2020

President Delivers a New Offer on the Fiscal Crisis to Boehner

The offer is close to a plan proposed by the speaker on Friday, and both sides expressed confidence that they were closing in on a major deficit-reduction plan that could be passed well before January, when more than a half-trillion dollars in automatic tax increases and spending cuts would kick in.

Senior Republican aides said the speaker was to meet with House Republicans on Tuesday morning to discuss the state of negotiations. But they cautioned that obstacles remained.

“Any movement away from the unrealistic offers the president has made previously is a step in the right direction,” said Brendan Buck, a spokesman for Mr. Boehner. “We hope to continue discussions with the president so we can reach an agreement that is truly balanced and begins to solve our spending problem.”

The two sides are now dickering over price, not philosophical differences, and the numbers are very close.

Mr. Boehner had offered the president a deficit framework that would raise $1 trillion over 10 years, with the details to be settled next year by Congress’s tax-writing committees and the Obama administration. In response, Mr. Obama reduced his proposal to $1.2 trillion from $1.4 trillion on Monday at a 45-minute meeting with the speaker at the White House. That was down from $1.6 trillion initially.

The White House plan would permanently extend Bush-era tax cuts on household incomes below $400,000, meaning that only the top tax bracket, 35 percent, would increase to 39.6 percent. The current cutoff between the top rate and the next highest rate, 33 percent, is $388,350.

On spending, the two sides are also converging.

The White House says the president’s plan would cut spending by $1.22 trillion over 10 years, compared with $1.2 trillion in cuts from the Republicans’ initial offer. Of that, $800 billion is cuts to programs, and $122 billion comes from adopting a new measure of inflation that slows the growth of government benefits, especially Social Security. The White House is also counting on $290 billion in savings from lower interest costs on a reduced national debt.

Of the $800 billion in straight cuts, the president said half would come from federal health care programs; $200 billion from other so-called mandatory programs, like farm price supports, not subject to Congress’s annual spending bills; $100 billion from military spending; and $100 billion from domestic programs under Congress’s annual discretion.

To make all this happen, Mr. Obama proposed fast-track procedures to help Congressional tax writers overhaul the individual and corporate tax code and make changes to other programs.

Senior Republican aides made it clear that differences remain. For instance, they say the president is still pressing for $1.3 trillion in higher taxes because the change in the way inflation is calculated would not only slow the growth of spending but also raise more revenue by slowing the rate at which tax brackets rise each year with the cost of living. That would mean that incomes would probably grow faster than the rise in tax brackets, pushing people more quickly into higher tax rates.

They also disagree with the president over counting lower interest payments on the national debt as savings.

“A proposal that includes $1.3 trillion in revenue for only $930 billion in spending cuts cannot be considered balanced,” said another spokesman for Mr. Boehner, Michael Steel, using the Republicans’ calculation for the president’s offer.

The president is also insisting on some protections for what he has called the “most vulnerable populations,” which Republican aides said they had not been expecting. The new inflation calculations, for instance, would probably not affect wounded veterans and disabled people on Supplemental Security Income.

And Mr. Obama is sticking by his request for additional upfront spending on infrastructure and an extension of expiring unemployment benefits.

He would also secure some tax and policy changes long sought by both parties but unattainable in the context of smaller budget deals. His proposal would permanently extend popular business tax breaks like the credit for corporate research and development, permanently stop the expansion of the alternative minimum tax so it does not affect more of the middle class, and stop a long-planned and deep cut to Medicare health providers, which Congress has never had the stomach to allow to kick in.

To keep the country from returning to fiscal showdowns, Mr. Obama wants the government’s borrowing limit to rise high enough to take the issue off the table for two years, although he said that Congress could periodically weigh in and try to override a presidential lifting of the debt ceiling, should it want to.

Senior Republican aides made it clear on Monday night that the plan was not what the speaker had wanted. He had proposed higher income tax rates on income over $1 million. That revenue would be supplemented by reinstating a provision in the tax code — phased out by the Bush-era tax cuts — that automatically limits tax deductions and credits for the affluent. The speaker was also ready to accept a White House proposal from Mr. Obama’s first days in office that would limit tax deductions to 28 percent, trimming back deductions for charitable giving and other activities from the top rate paid by the giver, 35 percent currently.

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DealBook: Italian Bond Dispute Illustrates Obstacles to Triggering C.D.S.

Seat Pagine Gialle is the publisher of the Italian yellow pages directories.Chris Warde-Jones/Bloomberg NewsSeat Pagine Gialle is the publisher of the Italian yellow pages directories.

The publisher of the Italian yellow pages directories, Seat Pagine Gialle, has missed a payment on its bonds and announced a tentative agreement to cancel the bonds and issue shares in the company instead. But that agreement may collapse because of a disagreement over how much stock will be issued.

That sounds like a prime example of how bondholders could have protected themselves by buying credit-default swaps, which are supposed to assure that investors will not suffer if a creditor defaults.

But it may not be.

At a meeting Monday, a committee of the International Swaps and Derivatives Association, the trade group that administers the credit-default swap, was unable to decide whether a “credit event” had taken place. So the decision was delayed until a group of three independent experts could be appointed to consider the issue.

All this may soon be moot if the company does not manage to make the bond payment by Wednesday. In the meantime, however, it serves to emphasize how difficult it can be to determine whether a credit event has taken place. If it has, procedures go into place to determine how large the losses are and require those who issued the credit-default swaps to pay that amount to the purchasers.

Under the association’s rules, in some cases there is no event if investors “voluntarily” agree to exchanges that in reality cost them money, a fact that has made it seem likely that credit-default swaps on Greek debt will not be activated if a European plan to encourage banks to exchange their bonds for bonds worth half as much goes through. Since that exchange would not be mandatory, the swaps would not be activated if interest payments continue on the bonds that are not swapped.

Yellow page directories have lost business everywhere, and Seat has tried to expand its Internet business. But it reported a loss of 33.2 million euros for the first nine months of this year, and on Oct. 28 it said it would delay an interest payment of 52 million euros, or about $69 million, for a month.

Last week, it said it had reached a tentative agreement with a majority of creditors, but that disputes remained with its senior debtholders over how much equity would go to the holders of 1.3 billion euros in bonds. It said that if a final deal were reached and accepted by bondholders, it would make the interest payment by Wednesday.

The swaps association’s committee for Europe — the same one that would determine whether a Greek default occurs — met three times over the last two weeks and delayed a decision. On Monday, eight of the 15 members voted there was a credit event, but the other seven voted that there was not. Since support of 12 members is needed, the proposal failed.

Six of the 10 members that came from banks that make markets in swaps voted that there had been an event, but only two of the five members that come from institutions that invest in swaps agreed. The association said no one would discuss reasons for their votes.

If the tentative deal falls apart and the interest payment is missed, there would be no doubt that a credit event had taken place. But since Seat Pagine Gialle is trying to get a voluntary agreement for a swap of the bonds for stock, it may be possible that there would be no credit event at all, even though it will be clear that bondholders have suffered a major loss.

With a new doubt regarding whether the swaps would be activated, the price of credit-default swaps on the company dipped a bit on Monday, but remained high. Markit, a market information firm, said the cost of buying a swap on 10 million euros of bonds was 7.25 million euros on Monday, down from 7.95 million euros on Friday.

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Square Feet: T. J. Gottesdiener

During his three decades at SOM, Mr. Gottesdiener has been involved in several major projects, including One World Trade Center, 7 World Trade Center, the Time Warner Center and the Lever House renovation.

Q You’ve been called the most famous architect few have heard of. Any comment?

A My comment is thank you — that’s a compliment. That’s a real testament to the way Skidmore works, which is about all of us working together and not one person being the most important part of the project. It’s all about the buildings.

Look, throughout the course of history at this firm there have been famous names — you might go to Gordon Bunshaft or Bruce Graham, and people know the name David Childs. Frankly, a lot of the name recognition you see has been created, whether by clients or by marketing.

Q Having said that, do you have a favorite architect?

A I would probably say Le Corbusier. There was something about his innovation and his plasticity about design. Although a lot of his urban projects that many people know about — Towers in the Park — are probably real disasters, there were other projects that were quite fascinating.

Q Let’s move on to one of SOM’s biggest projects, One World Trade Center. What’s your role there?

A SOM is the architect for Tower One, and we’re leading all of that design and effort. My role is managing that process.

Q So where do we stand in the process?

A We’re about 65 floors. They’re setting steel at the rate of a floor per week. We’re about the height of 7 World Trade Center, which is over 700 feet, and things are really falling into place.

Q Were you concerned by the numerous delays?

A People have commented that it’s taken a long time, and my comment is, I don’t think so. Look where we are now. We’ve had so many obstacles because of the conditions of the site: A lot of it was below the grade; it’s over active PATH tracks; we’re holding back the Hudson River, basically on reclaimed land. This is probably the most complicated building I’ve ever done.

Q And there have been more complications. Last month, the Port Authority vetoed the idea of having 2,000 glass panels installed at the base, in part because of technical problems.

A As it was manufactured, the glass at the base of One World Trade Center simply did not perform as we were promised, so we are in the process of redesigning it. Things like this happen occasionally, and that is why we have developed such a thorough process.

Q How did all the safety issues affect the building’s design?

A Well, I hope for you and everybody else who’s at the building, there’s no effect. But for us as designers there was a big impact.

When the towers came down after 9/11, we had to rethink the building codes, and 7 World Trade Center was the first one that implemented a lot of the ideas before the code had even been enacted. A lot of nuances and major things have changed in designing high-rise buildings.

Q Some of the new codes came at the suggestion of SOM, right?

A Many of our people were involved with the city in rewriting the codes. We have, for example, all kinds of redundancies in building systems. Fire protection has cross-connections, so if there’s one sprinkler that is out of service, the other one will cover it. We’ve increased stair widths to allow firefighters to climb upstairs while people exit. There are little things, like phosphorescent tape in the egress stairs.

It was done at 7 World Trade Center. They were almost experiments, because the code had not yet been enacted.

Q Is the rebuilding at ground zero a career-definer?

A I definitely would think that this is one of the greatest achievements that I’ve been able to work on. But I said that about the Time Warner Center and I said that about Tokyo Midtown.

Q Let’s talk about some other projects in New York.

A The John Jay College of Criminal Justice expansion project is close to being finished. We are doing a rather low building that will essentially become their campus. And we’re starting the first phase of the Moynihan Station redevelopment.

Q Is the firm doing anything to celebrate its 75th year this year?

A No. We thought about it, and talked about it. But the one thing we thought most about was what are we going to do for the next 75 years, to move forward.

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