House Speaker John Boehner of Ohio pulled off a neat trick this week: He proposed a “Plan B” to avert the fiscal cliff — which President Obama promptly rejected — without ever having offered a specific Plan A. Yet amid the 11th-hour partisan posturing, there remains the basis for a sound agreement on taxes and spending that both politicians should advance.
The President continues to insist — properly — that any budget agreement must include increased tax rates for the richest Americans. But instead of demanding higher taxes on people making more than $250,000 a year, Mr. Obama now says he will settle for a $400,000 floor. Intentional or not, that income cutoff is essentially the definition of the nation’s “1 percent.”
Mr. Boehner vows to accept rate hikes only on taxpayers making more than $1 million; at the same time, he wants to maintain estate tax cuts for wealthy heirs. Yet his agreement to permit any increase in tax rates is a major concession from his previous position.
For his part, the President has agreed to keep the 20-percent tax rate on dividend income; a tumble from the fiscal cliff would increase that rate to 39.6 percent. He also says he will accept spending cuts closer to the $1.2 trillion Republicans demand than the $600 billion he originally offered.
There are less appealing aspects of the negotiations. The temporary cut in the Social Security payroll tax likely will end.
Mr. Obama also has agreed to a proposal that would recalculate the Consumer Price Index. That change would reduce cost-of-living benefit increases for several federal programs, including Social Security, and would move some taxpayers into higher tax brackets more quickly as their income increases.
Adopting a “chained” CPI would be useful if it provides a more accurate measurement of inflation. But it cannot be allowed to burden elderly Americans whose health-care expenses are rising faster than the overall cost of living. Mr. Obama is proposing ways to do that, if Republicans are willing to accept them.
The President understandably seeks to prevent GOP lawmakers from again holding the nation hostage over the federal debt ceiling for at least two years. That should be part of any agreement; what isn’t acceptable is the speaker’s proposal to keep on the table for another year the Draconian cuts in domestic and defense spending that would take effect if there is no agreement by year’s end.
Mr. Obama’s proposal has other appealing features. It would extend federal benefits for long-term unemployed workers. It would not increase the age of Medicare eligibility. It would make needed investment in public works. It would fix the Alternative Minimum Tax, which now is hitting middle-class taxpayers.
Even if President Obama and Mr. Boehner cut a deal, of course, the speaker still would need to sell it to his fractious caucus. The question again would arise whether Mr. Boehner truly leads his caucus, or whether he is willing to be led by its most extreme and intransigent members, including several lawmakers from Ohio and Michigan. They need to know that delay won’t get them a better deal.
Critics on the right and left assert that a plunge from the fiscal cliff at the end of the year — with its attendant tax increases and harsh across-the-board spending cuts — would be better than a bad deal. But the best outcome of all remains an agreement that would offer the foundation for broader action to avoid a return to recession, start to tame the federal deficit, limit the growth of entitlement spending without afflicting the programs’ neediest recipients, and show that both parties still are capable of working together to make good public policy.
There is time for President Obama and Speaker Boehner to reach such an agreement, if they truly are committed to doing so.