Talks on preventing the New Year tax increase hit a major setback Sunday when Republicans demanded — and Democrats rejected —to trim cost-of-living increases for Social Security recipients.
The proposal, presented by aides to Republican Senate Minority Leader Mitch McConnell, R-Ky., was swiftly rejected by Senate Majority Leader Harry Reid, D-Nev.
McConnell said he asked Vice President Joe Biden to help broker a compromise.
“I’m willing to get this done, but I need a dance partner,” McConnell. “The consequences of this are too high.”
Democrats said they viewed the Social Security proposal as a step backward.
“When Leader Reid received this recent offer he was taken aback and disappointed,” said a Senate Democratic aide who spoke on the condition of anonymity to discuss the private talks. “We feel we are further apart than we were 24 hours ago.”
Republicans were already seeking a narrowed definition of wealthy, those earning more than $500,000, and wanted to prevent higher inheritance taxes.
Adjusting the cost of living increase for recipients of government benefits, including Social Security, had been offered earlier this month by President Barack Obama in talks with House Speaker John A. Boehner when they were negotiating a broader deficit-reduction deal. But once those talks fell apart, the Senate leaders had been trying to cobble together a more modest proposal that would simply avoid the tax increases coming after the current tax rates expire on Monday.
Reid said he had no immediate counteroffer but might later in the day.
Obama had initially sought to keep tax rates in place for all but the wealthiest 2 percent of taxpayers, those with incomes above $250,000, and once suggested moving to a $400,000 threshold as part of a broader deal that would also include spending reductions and a resolution to the coming debate over the debt ceiling.
Democrats have been willing to entertain the higher $500,000 income tax threshold Republicans want, but have resisted coupling that with a 35 percent rate on inheritance taxes for estates valued at more than $5 million. Obama wants the estate tax to rise to 45 percent on estates above $3.5 million.
With hours remaining to cut a deal, Obama has warned that Democrats will simply call a vote on his initial proposal — preventing tax increases on all but those incomes above $250,000 – and force the issue.
The president’s proposal would also include other must-pass year-end legislation — including an extension of long-term unemployment benefits, which expired Saturday.
By Lisa Mascaro - Tribune Washington Bureau (MCT)
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