Report: Fiscal cliff deal emerging — including one-year debt-ceiling increase; Update: Obama concedes on new, higher income threshold for tax hikes

I didn’t believe this when I saw it at WaPo yesterday, then I started to wonder when I read Ed’s post this morning, and now Ezra Klein claims Democrats are telling him the same thing. I thought the GOP’s big Plan B alternative to a grand bargain was to extend the Bush tax cuts for the middle class, let them lapse for the rich, and then go home so that they can fight another day when it’s time to raise the debt ceiling again in the spring. The automatic tax hikes on January 1 have deprived them of leverage in this negotiation, but they’ll have more once that’s over with and the debt ceiling is all that’s left on the table.

Change of plans: Now the GOP’s going to agree to raise the ceiling for another year, right up front. Wait, what?

Boehner offered to let tax rates rise for income over $1 million. The White House wanted to let tax rates rise for income over $250,000. The compromise will likely be somewhere in between. More revenue will come from limiting deductions, likely using some variant of the White House’s oft-proposed, oft-rejected idea for limiting itemized deductions to 28 percent. The total revenue raised by the two policies will likely be a bit north of $1 trillion. Congress will get instructions to use this new baseline to embark on tax reform next year. Importantly, if tax reform never happens, the revenue will already be locked in.

On the spending side, the Democrats’ headline concession will be accepting chained-CPI, which is to say, accepting a cut to Social Security benefits. Beyond that, the negotiators will agree to targets for spending cuts. Expect the final number here, too, to be in the neighborhood of $1 trillion, but also expect it to lack many specifics. Whether the cuts come from Medicare or Medicaid, whether they include raising the Medicare age, and many of the other contentious issues in the talks will be left up to Congress…

As for the debt ceiling, that will likely be lifted for a year, at least. In contrast to a week or so ago, when the White House was very intent on finishing the debt ceiling fight now, they’re sounding considerably less committed to securing a long-term increase in these negotiations. The argument winning converts, I’m told, is that since the White House won’t negotiate on the debt ceiling now and won’t negotiate on it later, there’s little reason to make it the sine qua non of a deal.

So in exchange for a tweak to Social Security’s benefit formula, Boehner’s agreeing to tax hikes on the rich and limits on deductions and a mere promise of future spending cuts and a debt-ceiling increase that would formally abandon the live-to-fight-another-day strategy? Note the “at least” part, too. Matt Yglesias is entirely right about this:

Punting 12 months on the debt ceiling so it comes in the middle of a congressional campaign seems like a recipe for disaster.

— Matt Yglesias (@mattyglesias) December 17, 2012

If you’re a House Republican, you’re much more apt to drive a hard bargain next spring than you are in early 2014, when election day will be less than a year away. In fact, if the economy starts to pick up and revenue increases next year, then the next debt-ceiling might be delayed by months — which could mean a showdown right before the midterms. No Republican facing reelection in a purplish district will go to the mat under those circumstances and Boehner knows it, so I assume the one-year deal will quickly become a two-year deal. Will, er, House conservatives — who are already irritated at Boehner’s offer on tax hikes — go along with that? Or is Boehner now prepared to write them off and govern with a coalition of Democrats plus a small group of moderate Republicans? If I’m Pelosi and JB comes back to the House with the sort of deal described above, I’d instruct my troops to vote no (at least on the first pass) just to watch Boehner be humiliated as waves of conservatives vote no too and the bill fails.

But maybe this is just a trial balloon. Here’s what his spokesman said about raising the debt ceiling:

Boehner’s offer signals that he expects a big deal with sufficient savings to meet his demand that any debt limit increase be paired dollar for dollar with spending cuts. That would permit him to keep a key vow to his party — and head off a potentially nasty debt-limit fight — at least until the end of next year.

“Our position has not changed,” Boehner spokesman Michael Steel said Sunday. “Any debt limit increase would require cuts and reforms of a greater amount.”

A Boehner aide told CNN the same thing — no debt-ceiling hike without an equivalent amount of cuts. Now that they’ve drawn that line publicly, they can’t cave without Boehner losing whatever remaining credibility he has with the House. So maybe this is just a tactic to pressure Obama on cuts by wringing a little positive PR from the negotiations for the GOP, with Boehner angling to come off as the responsible, compromise-minded side of the table who’s willing to give O what he wants in exchange for a little fiscal responsibility in return. If I were Obama, though, I’d call his bluff. Given how the polling worked out for the GOP after the last debt-ceiling standoff, Boehner will have tremendous difficulty holding the caucus together if/when there’s a new standoff in the spring. Why would O give him the cuts he wants now when he could try to split the House by forcing another debt-ceiling showdown a few months from now?

Update: I wonder what this concession bought from Boehner:

President Barack Obama has proposed a deficit-reduction package to House Speaker John Boehner (BAY’-nur) that would increase the top tax rates on taxpayers earning more than $400,000, cut more spending from health care programs and add $200 billion more in spending cuts over 10 years to his earlier offer.

Boehner had proposed an earnings threshold of $1 million for higher rates. Obama dropped his demand that individuals making more than $200,000 pay higher rates.

A higher threshold for the top bracket means less revenue raised once the new rate goes into effect, which in turn means less deficit reduction. But the tax part about this has never been about deficit reduction. If Obama cared about that, he’d have a serious entitlement reform plan on the table. This is about “fairness,” in all its arbitrary glory. The new threshold for what’s “fair”: More taxes from people who makes $400,000 or more.

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