September 21, 2021

Narrower Tax Deal Floated as Lawmakers Sit With Obama

That opening offer lowered expectations on Capitol Hill that a breakthrough could be pending, but behind the scenes, talks continued, focusing on a possibly higher threshold of $400,000. Senator Max Baucus of Montana, chairman of the Senate Finance Committee, said sentiment is “gelling” around a new offer, and a source familiar with the negotiations said the president would ask Republican and Democratic leaders what proposal could win majority support in the House and Senate.

The source said that the president would use the opportunity to make the case for a proposal that he believed could pass both the House and Senate, one that included extending lower tax rates for household income of $250,000 or less and an extension of unemployment insurance for two million Americans who are about to lose their benefits. The official said that the president intended to ask the Congressional leaders for a counterproposal or to allow an up-or-down vote on his outlined plan.

The meeting with Senator Harry Reid, the majority leader; Senator Mitch McConnell, the Republican leader; Speaker John A. Boehner; and Representative Nancy Pelosi, the Democratic leader, came as another potential compromise was emerging.

The plan was in its early stages and far from being accepted. But Congressional officials say staff-level talks between the White House and the Senate Republican leader centered around a deal that would extend all the expiring Bush income tax cuts up to $400,000 in income.

Some spending cuts would pay for a provision putting off a sudden cut in payments to medical providers treating Medicare patients. The deal would also prevent an expansion of the alternative minimum tax to keep it from hitting more of the middle class. It would extend a raft of already expired business tax cuts, like the research and development credit, and would renew tax cuts for the working poor and the middle class included in the 2009 stimulus law. The estate tax would stay at current levels.

It would not stop automatic spending cuts from hitting military and domestic programs beginning on Wednesday, nor would it raise the statutory borrowing limit, which will be reached on Monday. Congressional aides said those issues would be dealt with early next year in yet another showdown.

White House officials denied that any such offer was developing and said that the president was sticking with his insistence that household income only up to $250,000 would be protected from tax increases.

While neither side was confident of any agreement, some top lawmakers said there was still a chance of a breakthrough that could at least avoid the most far-reaching economic effects. “I am hopeful that there will be a deal that avoids the worst parts of the fiscal cliff; namely, taxes’ going up on middle-class people,” Senator Charles E. Schumer, the No. 3 Senate Democrat, said Friday on the “Today” show on NBC. “I think there can be. And I think the odds are better than people think that they could be.”

Democrats from high-tax, high-wealth states have pressed the White House and their leaders to accept a threshold higher than the president’s $250,000, but they appear ready to accept anything that can pass.

“I have a very practical standard to apply: whatever threshold we need to avoid the fiscal cliff,” said Senator Joseph I. Lieberman, a Democrat-turned-independent from Connecticut.

Much of the legislative attention was focused on Mr. McConnell as Democrats pushed him to provide assurances that Republicans would not use procedural tactics to block any measure that the Senate might consider. House Republican leaders have already said they would be willing to consider whatever legislation the Senate could pass when the House convenes beginning Sunday afternoon. If Republicans chose to erect hurdles to any legislation, Congress might not have sufficient time to advance a measure before the deadline on Tuesday.

Mr. McConnell was well aware of the Democratic efforts to put the onus on him. “Make no mistake: the only reason Democrats have been trying to deflect attention onto me and my colleagues over the past few weeks is that they don’t have a plan of their own that could get bipartisan support,” he said on Thursday.

But he also said he was willing to review any proposal that would come from the White House and then “we’ll decide how best to proceed.”

“Hopefully there is still time for an agreement of some kind that saves the taxpayers from a wholly preventable economic crisis,” he added.

As it awaited a proposal on tax and spending issues, the Senate did make some progress on other legislation, sending the president a renewal of antiterrorism surveillance laws and advancing some relief for states and communities hit by Hurricane Sandy this year.

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After an Online Firestorm, Congress Shelves Antipiracy Bills

Using a medium that helped organize protests against the legislation, Senator Harry Reid, the majority leader, announced via Twitter that the vote would be delayed. But he indicated that the issue, which had been scheduled for a vote Tuesday, had not died.

“There’s no reason that legitimate issues raised about PROTECT IP can’t be resolved,” he wrote, referring to the Senate bill by its shorthand name. “Counterfeiting piracy cost 1000s of #jobs yearly. Americans rightfully expect to be fairly compensated 4 their work. I’m optimistic that we can reach compromise on PROTECT IP in coming week.”

In the House, Representative Lamar Smith, the Texas Republican who is chairman of the Judiciary Committee, called off plans to formally draft his version of the antipiracy bill next month.

After vowing two days ago to move forward, Mr. Smith said in a statement on Friday: “The committee remains committed to finding a solution to the problem of online piracy that protects American intellectual property and innovation.” But he added, “The House Judiciary Committee will postpone consideration of the legislation until there is wider agreement on a solution.”

Speaker John A. Boehner, talking with reporters Friday in Baltimore, where House Republicans held their annual retreat, called the bill “well meaning,” but said it needed “more consensus.”

Supporters of the shelved bills as well as opponents pushing an alternative backed by the Internet giants Google and Facebook said differences could be bridged. But privately, Congressional aides and lobbyists say the pressures of an election year make action this year unlikely. Lawmakers will not be eager to brave another firestorm incited by Google, Facebook, Twitter, Wikipedia and other popular Web sites.

Senator Ron Wyden, Democrat of Oregon and a key opponent of the bills, said lawmakers had collected more than 14 million names — more than 10 million of them voters — who contacted them to protest the once-obscure legislation.

“It’s going to be a new day in the Senate,” said Mr. Wyden, who is the co-author with Representative Darrell Issa, Republican of California, of an alternative bill that seeks to choke off money flows to Internet pirates. “The way citizens communicate with their government is never going to be the same.”

Mr. Wyden spoke briefly to Senator Patrick Leahy, the Vermont Democrat who was the author of the shelved bill, and both men said they pledged to find a way forward.

But Mr. Leahy, the chairman of the Senate Judiciary Committee, made it clear that proponents of his bill, the Protect I.P. Act, felt burned by Internet companies who they said misled citizens into believing the bill would cripple the Internet. The opposition turned illegal on Thursday when the online hacker group Anonymous brought down the Department of Justice’s Web site.

“Assuming everyone’s telling the truth, that they want to stop the theft of property, that they want to stop endangering people with counterfeit goods, then we ought to be able to find common ground,” Mr. Leahy said. “I hope people, when they’re dealing, will deal honestly with you.”

The Protect I.P. Act and its counterpart in the House, the Stop Online Piracy Act, had broad bipartisan support when they were drafted by Mr. Smith and Senator Leahy. The bills were pushed hard by the Hollywood studios, recording industry, book publishing world and United States Chamber of Commerce as antidotes to rampant piracy of American cultural wares by offshore Web sites.

But many Internet companies, including Google, Facebook, Twitter and Reddit, saw the bills as a threat, and said they would stifle creativity on the Internet while forcing search engines and social media to become police officers for the Department of Justice. Other outlets, such as Wikipedia, objected to any proposed laws that could crimp the free flow of information on the Internet.

The Internet giants rallied their troops to rise up against such Washington stalwarts as the Motion Picture Association of America and the Recording Industry Association of America. What had started as a nonpartisan issue began turning to Republican advantage, as Republicans led the flight away from the bill.

By Thursday night, senior Republican staff members were boasting that the remaining supporters of the bills were largely Democrats, even though members of both parties had helped draft them.

Mr. Leahy went along with Mr. Reid’s decision to back off but made it clear that he was doing so reluctantly.

“More time will pass with jobs lost and economies hurt by foreign criminals who are stealing American intellectual property and selling it back to American consumers,” he said in a statement.

“The day will come when the senators who forced this move will look back and realize they made a knee-jerk reaction to a monumental problem,” he added. “Somewhere in China today, in Russia today, and in many other countries that do not respect American intellectual property, criminals who do nothing but peddle in counterfeit products and stolen American content are smugly watching how the United States Senate decided it was not even worth debating how to stop the overseas criminals from draining our economy.”

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Political Memo: Congress Takes Up a Partisan Battle, Again, Over Spending

Shutting down the government. Again.

For the third time in a year, the divided 112th Congress is dancing on the edge of catastrophe, locked in a bitter partisan battle over fiscal measures, with unrelated policy debates clinging to the side.

Republicans and Democrats do not agree on how to pay for something that both sides claim to want — extension of a payroll tax holiday for almost every worker — and have until the end of the year to work it out or see the tax go up, something that most economists say would further damage the nation’s fragile economic health by taking money out of consumers’ pockets.

Now tied to this measure is a plan to keep the government financed through the rest of the fiscal year, because Senator Harry Reid, Democrat of Nevada and the majority leader, has indicated that he will not permit a vote on the huge spending measure until Republican and Democrats can come together on the payroll tax bill, which would also include an extension of unemployment benefits.

If an agreement on the spending bill does not come by midnight Friday, the government will be unable to pay its bills unless Congress passes yet another stop-gap financing bill to buy time, something the White House indicated late Wednesday night that it would prefer. 

Leaders of both parties say they are determined to avoid a pre-Christmas shutdown, raising the possibility that Congress may just pass a short-term bill to keep the government open and kick the whole payroll tax and spending mess into next year.

The ugly dynamic mirrors the battles of last spring, when the government came within a whisker of shutting down over a spending fight, and last summer, when the nation almost defaulted on its debt obligations when Congress fought over raising the debt ceiling.

Now, with Congress entering a winter of discontent, each side expressed outrage — much of it manufactured — on Wednesday and blamed the other side for the potential debacle looming at the end of the week.

After meeting privately with President Obama on Wednesday, Senate Democrats began to cobble together a new deal to extend the payroll tax without using a surcharge on incomes over $1 million, something Republicans detest. They hope the new measure will have legs in both chambers, but Mr. Obama’s press office said Wednesday that the president would like Congress to pass a short-term financing measure, known as a continuing resolution, for now. 

At the same time, House Republicans, who have already passed a payroll tax extension that Senate Democrats oppose,  late Wednesday night filed their own spending bill that they may bring to the floor Friday it an attempt to pass it,  leave town and force the Senate either to take or leave the House measure. But it was far from clear that they had the necessary votes to execute that tactic.

The last-minute wrangling is the predictable outgrowth of the failure last month of the special Congressional committee assigned to find $1.2 trillion in deficit savings. The panel was supposed to take care of the payroll tax holiday, the extension of unemployment issues and numerous other things, but its collapse left the fate of those issues and others up in the air.

The threat of the potential December shutdown is even more bizarre than the previous two near-misses, because it centers on the rank-and-file Republicans’ reluctance to extend a tax cut to middle-class workers and relatively minor issues over a spending bill that each side was tantalizingly close to signing off on.

This latest in a series of high-profile, last-minute fights, all in a single year, underscores that the 112th Congress has no modern antecedent for what many see as its unusual — and potentially dangerous — brinkmanship.

“This whole year has been historic in its patterns,” said Thomas E. Mann, a senior fellow at the Brookings Institution. “They always get work done at the end of sessions, they always put things off until they have to do them, but it’s the hostage taking and recklessness of it all that is so unusual.”

The day began with Mr. Reid sparring with Senator Mitch McConnell of Kentucky, the minority leader, on the Senate floor, with Mr. Reid expressing bafflement over Mr. McConnell’s refusal to let the Senate vote on the House payroll tax bill that passed earlier in the week.

Mr. Reid wants to quickly vote the bill down because while it would extend a cut in Social Security payroll taxes for 160 million workers, it also eases the way for an oil pipeline opposed by environmental groups, blocks certain air pollution rules, freezes the pay of many federal employees through 2013, increases some Medicare premiums, and greatly reduces unemployment benefits and adds a host of new rules for receiving them.

Mr. McConnell said he would not permit a quick vote on the measure until the spending agreement was passed in the Senate.

For their part, Senate Democratic leaders met with President Obama at the White House and resolved to prepare a new offer that would exclude their earlier plan to pay for the payroll tax holiday with a surcharge on incomes over $1 million, seeking savings instead from a variety of federal programs, with many of the cuts culled from the failed bipartisan committee’s list of things both sides agree upon.

As talk of another short-term spending agreement circulated, Jay Carney, the White House spokesman, said such a plan was not ideal but could be employed if a shutdown loomed.

Given the “dysfunctionality” that Congress has demonstrated this year, Mr. Carney added, it would be hard to “suggest that this Congress is capable of achieving an ideal.”

At the House, Speaker John A. Boehner said the ball was in the Senate’s court, even as he suggested that his chamber might pass its own spending bill based on a bipartisan agreement that was near completion, in spite of some Democratic concerns about provisions that would limit family planning for women in the District of Columbia and restrict visits to Cuba by Cuban-Americans.

“There is no reason for it to be held hostage to try to give one side leverage,” Mr. Boehner said.

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Lawmakers Renew Push for Deal on Cutting Deficit

“We are working, and I’m confident there will be resolution,” Mr. Boehner told fellow House Republicans on an afternoon conference call, according to participants. “There has to be.”

Yet an hourlong Saturday meeting in Mr. Boehner’s Capitol suite was followed by pessimistic assessments of the state of negotiations from the two top Congressional Democrats, Senator Harry Reid, the majority leader, and Representative Nancy Pelosi, the minority leader. They accused Republicans of refusing to give ground on how the federal debt limit would be raised.

“Their unwillingness to compromise is pushing us to the brink of a default on the full faith and credit of the United States,” Mr. Reid said of Mr. Boehner and Senator Mitch McConnell, the Senate Republican leader who also attended the session. “We have run out of time for politics. Now is the time for cooperation.”

The impasse over major elements of the agreement came even as lawmakers said they were determined to make a new compromise public on Sunday afternoon before the opening of financial markets in Asia to reassure investors there.

President Obama began a morning meeting with Congressional leaders at the White House by noting that global markets could react adversely to Friday’s collapse of his and Mr. Boehner’s negotiations as early as Sunday, before trading begins in Asia. His Treasury secretary, Timothy F. Geithner, reinforced the point at the meeting’s end.

The tense series of high-powered meetings on Saturday was reflective of the sense of urgency among lawmakers with little more than a week before the federal government risks defaulting on its debts, a fate that could be avoided if Congress agrees to increase the $14.3 trillion debt ceiling. Congressional Republicans, Democrats and Mr. Obama have seized on the debt fight as a way to win approval of a debt-reduction package but have disagreed sharply over what it should include.

The speaker, who abruptly broke off budget talks with Mr. Obama on Friday evening, said that he hoped the plan could be finished within 24 hours and indicated on the conference call with House members that the savings would most likely be achieved in two stages. As described by knowledgeable Congressional aides, the agreement under discussion would enact a first round of cuts of just under $1 trillion, an amount they said was sufficient to clear the way for a debt limit increase through 2011. A second increase would follow after a newly created legislative commission considered a broader range of spending cuts, program overhauls and potential revenue increases.

Democrats, who have dug in against anything they see as a short-term extension that would require multiple votes on the debt increase before the end of next year, said they accepted the two-stage plan but wanted the full increase in the debt limit now.

“I will not support any short-term agreement, and neither will President Obama nor Leader Pelosi,” Mr. Reid said in a written statement earlier on Saturday. “We seek an extension of the debt ceiling through at least the end of 2012. We will not send a message of uncertainty to the world.”

Following Mr. Reid’s criticism, Republican officials said they have for months stuck to a consistent position demanding that each dollar increase in the debt ceiling be offset with a dollar in savings. They did not appear ready to abandon that position, with a spokesman for Mr. Boehner saying a two-step process was “inevitable.”

Still, the spokesman, Michael Steel, said that “we continue to believe that defaulting on the full faith and credit of the United States is not an option.” An aide to Mr. McConnell said the negotiations aimed at preventing a default would continue.

Mr. Reid and the other leaders met at the White House on Saturday morning at the request of Mr. Obama. The meeting broke up without resolution just before noon, after about an hour of discussion.

In a statement after the White House session, Mr. McConnell indicated that he and his leadership counterparts were intent on devising a fallback measure to assure the borrowing ceiling was raised in time.

“The president wanted to know that there was a plan for preventing national default. The bipartisan leadership in Congress is committed to working on new legislation that will prevent default while substantially reducing Washington spending,” Mr. McConnell said.

The White House, in its own statement, said that Mr. Obama reiterated his opposition to a short-term extension of the ceiling because it would hurt the economy, prompt rating agencies to downgrade the nation’s credit rating and drive up interest rates for all Americans.

“As the current situation makes clear, it would be irresponsible to put our country and economy at risk again in just a few short months with another battle over raising the debt ceiling,” the White House statement said.

The rancorous ending to the debt discussions on Friday means that leaders of the House and Senate now have only days to find a debt limit solution that has eluded them for months, gaming out ways to get a debt increase through a Republican-controlled House packed with conservatives demanding deep cuts and no new revenues.

Republicans were taking pains to show that the new plan was different from an earlier proposal by Mr. McConnell that would allow Congress to clear a debt increase through a procedural maneuver.

Under that approach, Congress could vote to disapprove the debt increase but allow Mr. Obama to veto the plan and get a rise in the ceiling if the House or Senate failed to override the veto, a very likely outcome. Aides said, however, that the developing proposal was likely to be modeled in some part on the McConnell approach, which had run into resistance in the House and from conservative activists.

In weeks of negotiations, House and Senate members have identified more than $1 trillion in savings that they could agree on, including cuts in federal agency budgets, farm subsidies, federal pension benefits and Medicaid.

If the new talks collapse, House Republicans could ultimately devise an extension based on cuts they identify and send it to the Senate, daring lawmakers to reject it or the president to veto it.

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Senate Rejects House Budget Plan; Obama Calls for Deal

  Senators voted 51 to 46 along party lines to set aside the measure, known as the “cut, cap and balance” bill, which was sent to the Senate by the House this week and seen by conservative House members as their preferred option for increasing the debt ceiling. For many House Republicans, the legislation was their best offer in the continuing standoff with President Obama and Congressional Democrats.

  After the vote, Senator Harry Reid, the Nevada Democrat and majority leader, said the Senate was for the moment abandoning its  fallback plan and would not  immediately move ahead with a procedural maneuver proposed by Senator Mitch McConnell of Kentucky to increase the debt limit. He said the Senate would instead await the results of negotiations between Mr. Obama and the House speaker, John A. Boehner of Ohio, over a broad deficit reduction package.

  “The path to avert default now runs through the House of Representatives,” Mr. Reid said after Democrats voted against the House plan.  He said that he was canceling plans to keep the Senate in session over the weekend and that lawmakers would instead reconvene Monday, just more than a week before the Aug. 2 deadline set by the Treasury Department for increasing the $14.3 trillion limit.

  The debt fight was turning into what Senator Mark Pryor, Democrat of Arkansas, described as a “cliffhanger moment,” with no resolution in sight even as talks continued  between the president and the speaker.

Mr. Obama said at a town hall meeting where he was taking questions Friday morning that he was willing to agree to “historic” spending cuts in an effort to trim the nation’s budget deficit, and urged Congressional factions to come together and reach a deal. He said it was not conceivable that the United States would default on its debt.

“This is a rare opportunity for both parties to come together and choose a path where we stop putting so much debt on our credit card,” Mr. Obama said. 

But he repeated his demand that spending cuts be accompanied by revenue increases, and said tackling the rising costs of Medicare and Medicaid was necessary in order to preserve those programs.

Before a friendly audience, he spoke, sometimes in stark terms, of the concessions that Democrats will have to make in order to get the budget deal passed.

“I’ve agreed to also target some programs that I actually think are worthwhile,” the president said. “They’re cuts that some people in my own party aren’t too happy about. And frankly, I wouldn’t make them if money weren’t so tight.”

Even before he has reached a sweeping budget and debt deal with Mr. Boehner, Mr. Obama is trying to sell his concessions to Congressional Democrats, many of whom fear a “grand bargain” will undercut their party’s ability in the 2012 campaigns to use Republicans support of deep cuts in Medicare, Medicaid and Social Security against them.

On the campus of the University of Maryland in College Park, Mr. Obama thrust himself deep into heavily Democratic country — there were few Republicans to be found among the audience of around 2,500 at the town hall meeting in Ritchie Coliseum on Friday. Mr. Obama fielded an array of questions that in many ways showcased the deep mistrust with which some on the left are viewing the budget negotiations.

One man said he had cerebral palsy and needed health services (“Please don’t leave us holding the bag,” he said, to cheers from the audience). Another woman who said she was a teacher asked Mr. Obama how she was supposed to teach her students about compromise when Republicans never did so.

“I’m sympathetic to your view that this would be easier if I could do this on my own,” Mr. Obama said to another man who suggested that Republican demands for deeper cuts be tossed aside. “But that’s not how our democracy works, and Americans made a decision about divided government.”

 Though the Senate would not be in session, Mr. Reid said meetings would be occurring all weekend to try to resolve the impasse. “I hope this weekend brings good sense, common sense and vitality to the work that is being done in the House of Representatives,” Mr. Reid said.

   Republicans criticized Democrats for their rejection of the House plan.

  “Senate Democrats have defied the will of the American people who overwhelmingly support real spending cuts, caps on future spending and a balanced budget to create a better environment for private-sector job growth,” Mr. Boehner said.

  But the outcome was  a foregone conclusion and leaders of both parties said the Senate needed to dismiss the House plan to show Republicans that the proposal was dead, clearing the way for an alternative, though exactly what that alternative would be was unclear.

Mr. Obama for the first time addressed — and ruled out — the idea that the Constitution empowers a president to increase the debt limit to prevent default and, as he put it, “basically ignore” the federal law requiring that the debt ceiling be set by statute. The argument of “the constitutional option,” which President Bill Clinton — like Mr. Obama a former constitutional law instructor — endorsed in an interview this week, is based on the 14th Amendment’s provision that the validity of the United States debt “shall not be questioned.”

“I have talked to my lawyers,” Mr. Obama said, and “they are not persuaded that that is a winning argument.”

Michael D. Shear and Jackie Calmes contributed reporting.

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