Top congressional leaders of both parties, eager to avoid the “fiscal cliff,” are beginning to show signs of willingness to compromise on the thorny issue of raising taxes on the wealthiest Americans as they prepare to meet President Obama on Friday at the White House.
Republican leaders on Capitol Hill this week said they are willing to talk about increased government revenue from closing down tax deductions and loopholes, while Democrats including Mr. Obama and House Minority Leader Nancy Pelosi have signaled willingness to concede on raising the top income tax rate back to 39.6 percent.
“We are open to a grand bargain, and however we get to the place where we can have significant deficit reduction,” Mrs. Pelosi told reporters Thursday. “Now, the president campaigned on the [$250,000 income level], the American people support that, I think that is where a good deal of leverage is in these negotiations. But again, as I have said before, I am fairly agnostic about certain things. I just want to have something that is fair and that will work.”
The slight movement was made a little more than a week after Election Day and signals a willingness to try to find bipartisan agreement — though myriad hurdles remain.
Indeed, even as Mrs. Pelosi said she is open to new ideas on squeezing money out of wealthy taxpayers, she joined her Democratic counterpart in the Senate, Majority Leader Harry Reid, in saying Social Security and Medicare cuts shouldn’t be part of these negotiations.
Top leaders will gather at the White House to begin negotiations, though aides warned not to expect any substantive decisions to emerge.
Part of the problem is that the two sides don’t have a common goal for the size of deficit reduction they want to achieve, nor do they agree on what should be part of the negotiations.
The two must-do items that make up the “fiscal cliff” are the expiration of Bush-era tax cuts and $110 billion in automatic spending cuts due in early January.
If those are allowed to hit, analysts say, they would plunge the country back into a short, sharp recession. But delaying the fiscal cliff would mean deeper deficits and more pain in the long run, according to the Congressional Budget Office.
The rates are shaping up as the crux of the issue. Republicans have opposed any effort to raise more revenue, and Mr. Obama and fellow Democrats have insisted that those making $250,000 or more must pay income taxes at the Clinton-era rate of 39.6 percent.
On Wednesday, in his postelection news conference, Mr. Obama signaled some wiggle room. Spokesman Jay Carney reinforced that Thursday by saying the president “is not wedded to every detail in his plan.”
“He welcomes the tone and content of the statements that many Republican leaders have said about their willingness to include revenues and to compromise,” Mr. Carney said. “That is very important. So he is open to new ideas, but he will not accept a proposal that has some vague promise of revenues produced from closing loopholes and limiting deductions from the wealthy that is coupled with very concrete burdens placed on the middle class and seniors. That’s not acceptable.”
Indeed, Republicans last year offered a plan that would have ended some tax deductions but plugged that revenue back into the tax system, lowering rates across the board. They argued that the better economic growth from a flatter tax system eventually would produce more revenue.
But this week, Republican aides said they will have to accept a final plan that plows some of the additional revenue into deficit reduction.
Even if they solve the tax issue, lawmakers will have to haggle over the $110 billion in automatic spending cuts — the legacy of last year’s debt deal — which are to be split between defense and domestic programs.