(Bloomberg) As Democrats demand tax concessions from Republicans to avert a collision over the federal budget, Senate Democratic leaders are signaling that they may be willing to trade an entitlement spending overhaul to secure a deficit- reduction deal.
Dick Durbin of Illinois, the second-ranking Senate Democrat, said he might reluctantly be open to expanding means- testing for Medicare eligibility—charging more to higher- income seniors. New York Senator Chuck Schumer said he wouldn’t rule out changing entitlements, challenging Republicans to come up with specific proposals.
Republicans “want something to put up on the wall and say, ‘OK, we gave on taxes, they gave on’” entitlements, Durbin said in an interview Thursday. “We may end up facing it as the only way out of this.”
The newfound flexibility could be a sign that both parties are edging toward a compromise to avert what has been labeled a fiscal cliff —a Jan. 1 surge of more than $600 billion in automatic tax increases and spending cuts that could propel the nation into recession.
Not everyone is convinced. House Speaker John Boehner said in a press conference Friday that there was "no progress to report." An agreement won’t be possible “if the President insists on his position, insists on my way or the highway,” he said. “That’s not the way to get an agreement.” Boehner also said that this has been a “wasted week” in the negotiations.
With President Barack Obama and Boehner —the chief Republican negotiator—not disclosing any progress in their private talks, Jon Kyl of Arizona, the Senate’s second-ranking Republican, said: “It doesn’t appear to me that they’re going anywhere. And that’s too bad.”
In the Senate Thursday, Majority Leader Harry Reid, a Nevada Democrat, and Minority Leader Mitch McConnell, a Kentucky Republican, sparred over Obama’s proposal to give himself authority to raise the federal debt ceiling without approval by Congress. McConnell sought a vote on the proposal, though he retreated by threatening a filibuster after Democrats determined that they had the 51 votes necessary to pass the bill.
McConnell “hasn’t learned that this is not 2010 anymore. There’s no hay to be made by playing politics with the debt limit,” said Schumer.
Reid, McConnell and Representative Nancy Pelosi of California, the House Democratic leader, have been excluded from the negotiations, leaving it to Boehner and Obama alone to find a deal, said a Republican aide who requested anonymity when discussing the negotiations. According to another Republican aide, having the more partisan minority leaders from both chambers as participants in similar talks last year wasn’t constructive.
Obama has stressed that no deal is possible without letting income tax rates rise for the top 2 percent of earners. All rates will increase without a deal as tax cuts first enacted under President George W. Bush expire in 2013. Both sides say they don’t want that to occur for 98 percent of taxpayers.
In a Bloomberg Television interview this week, Obama signaled he’s ready to make concessions on entitlements, saying, “I don’t expect Republicans to agree to any plan where they’re just betting on the outcome that entitlement reform will happen.”
Democratic comments Thursday coincide with signs that the once-unified opposition among Republicans on the tax-rate issue is splintering.
A few dozen Republican lawmakers have signed a bipartisan letter calling for “all options” to be considered on taxes and entitlement programs in the deficit-reduction talks, even as Boehner has insisted that his party won’t agree to higher tax rates for anyone.
A Republican leader of the petition to consider all revenue options, Representative Mike Simpson of Idaho, said he could accept higher tax rates for married couples earning more than $500,000 a year in exchange for an overhaul of entitlement programs. Obama wants to let tax rates increase for individuals with incomes above $200,000 annually and for married couples with incomes exceeding $250,000.
Durbin expressed openness to Simpson’s suggestion to raise the income threshold for higher tax rates. “If you’ve been around here long enough, you know there’s going to be some give on both sides,” Durbin said. “As the president said, and I’ll just leave it in his words, ‘I’m open to good ideas.’”
Boehner, in a $2.2 trillion deficit-cutting plan he offered this week, proposed using a new inflation yardstick—the so- called chained consumer price index—that would reduce cost- of-living increases in Social Security, as well as raising the Medicare eligibility age. Other Republicans have also advocated means-testing.
Democrats have long regarded their party as the champions of preserving safety-net programs for the poor and elderly, and Reid has repeatedly said that Social Security is off the table in debt-deal talks.
Still, raising the Medicare eligibility age and using a different Social Security inflation yardstick were on the table during failed budget talks between Obama and Boehner in 2011. Simpson cited either of those options as a way to win Republican votes for a tax rate increase on top earners.
Schumer, when asked about the ways to trim entitlement costs, said, “Let them give it to us officially as an idea,” without ruling them out.
Since Obama’s re-election last month, much of the public debate on a possible deal has focused on taxes. Obama yesterday visited a middle-class couple in Falls Church, Virginia, a suburb of Washington, to emphasize the need for an agreement to keep their taxes from rising.
Entitlement programs are the biggest driver of the long- term debt. With the oldest of the baby-boom generation reaching retirement age, the number of people age 65 and older is projected to increase by about one-third in the next decade, according to the Congressional Budget Office.
Durbin said it would be “difficult” to change the calculation of Social Security cost-of-living increases, and raising the Medicare eligibility age could hurt impoverished seniors who retire early with health problems.
Medicare is already a means-tested program, with beneficiaries earning more than $85,000 a year paying more for some of its benefits.
“The question is what other means tests should apply,” Durbin said. “I think that is reasonable, and certainly consistent with the Democratic message that those who are better off in our country should be willing to pay a little more.” Republicans have “got to come through with specifics on that,” he added.
Many of the options for curbing entitlements have met with fierce opposition from powerful groups including the AARP seniors’ lobby, which wrote to Congress and the President last month expressing its concerns about such proposals.
The group fanned out across Capitol Hill this week to lobby against two elements in Boehner’s plan: raising the Medicare eligibility age and using the chained CPI for Social Security. Medicare’s eligibility age, 65, hasn’t been increased since the program began in 1966.
The Medicare change could save the federal government more than $100 billion while increasing health-care costs to senior citizens, states and employers. People age 65 and older could pay an extra $2,000 for health insurance if they are excluded from Medicare, according to the nonpartisan Kaiser Family Foundation.
The chained CPI inflation method to determine annual cost- of-living adjustments for millions of Americans was a central feature of both the plan presented by the co-leaders of Obama’s 2010 debt commission and a blueprint by the Bipartisan Policy Center’s Debt Reduction Task Force.
Social Security and other government benefits, along with much of the tax code, are automatically adjusted to reflect inflation. Yet economists say that exaggerates how quickly prices increase, meaning the government pays too much for annual cost-of-living gains while collecting too little tax revenue.
Over 10 years, using the chained CPI pushed by Boehner would reduce projected Social Security spending by 1.2 percent, according to the CBO. “Every bipartisan group that has reached a conclusion has said those are the elements you have to have,” said Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, referring to the proposed changes to entitlement programs.
“It’s just as clear as it can be,” he said on Dec. 4 when asked about the need for his party to compromise. “Both sides have to move off their fixed positions in order to reach an agreement.”
(Additional reporting by Roxana Tiron and James Rowley)
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