After many weeks of delay, the logjam finally broke and budget negotiations have started in earnest. If press reports are correct, there has been notable progress on several fronts:
President Obama has lowered his 10-year tax demand first from $1.6tr, to $1.4tr and then to $1.2tr. Meanwhile, Speaker Boehner has upped his offer from $0.8tr to $1.0tr.
Obama has agreed to keep tax rates steady for households with incomes below $400,000 rather than below $250,000. Boehner seems to have accepted higher rates for people with income over $1 million.
The two sides also seem to be converging on spending cuts. Obama has offered a plan with $1.2tr in spending cuts, including a specific offer to change the cost of living calculation for entitlements. Meanwhile, Boehner talks of $1tr in cuts.
There also seem to be serious negotiations around many other cliff items, including patching the AMT and letting the payroll tax cut expire.
The press can smell a deal. Today we saw the following headlines:
Bloomberg: “Obama Concessions Signal Potential Bipartisan Budget Deal”
Wall Street Journal: “With New Offers, Fiscal Cliff Talks Narrow”
New York Times: “Obama’s New Offer on Fiscal Crisis Could Lead to a Deal”
Washington Post: “A ‘fiscal cliff’ deal is near: Here are the details.”
Maybe they can get a pre-Christmas deal after all?
While things look a lot more hopeful than a week ago, we have not changed our call: we expect a deal only at the last minute, with lots of decisions delayed into the new year and austerity of roughly 2% of GDP.
Read the full report here.