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Hopes rise for a deal on tax rates

More in GOP foresee increase for the rich

“There is a growing group of folks who are looking at this and realizing we don’t have a lot of cards as it relates to the tax issue before year’s end,” Tennessee Republican Senator Bob Corker said.

Mark Zaleski/Associated Press/File 2012

“There is a growing group of folks who are looking at this and realizing we don’t have a lot of cards as it relates to the tax issue before year’s end,” Tennessee Republican Senator Bob Corker said.

WASHINGTON — There were faint signs on Sunday that Washington could cut a deal before reaching the so-called fiscal cliff, despite House Speaker John Boehner’s declaration last week that no progress was being made in negotiations.

More Republicans are imagining what an agreement that includes tax hikes on the wealthy might look like — a broader pact that would include spending cuts — rather than digging in against any rate increase.

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“I actually am beginning to believe that is the best route to take,” Senator Bob Corker, a Tennessee Republican, said on Sunday.

For sure, the gap between President Obama and Boehner remains wide, especially on tax cuts. The two held a private meeting at the White House on Sunday but did not say anything afterward.

Washington squabbling continued as usual on the Sunday political talk shows. But Republicans outside the House leadership increasingly acknowledge that Obama and the Democrats have the upper hand.

The dynamics favor the White House because, if the fiscal cliff is reached on Jan. 1 and everyone’s income taxes rise as scheduled, Obama likely could then win Congressional approval for a stand-alone tax cut for 98 percent of Americans while allowing tax rates to remain higher for the wealthiest 2 percent. That scenario could prove politically damaging for Republicans, who would have lost both the biggest tax fight and come away empty-handed.

So the emerging question for the House and Senate GOP is weather they can secure entitlement cuts and other spending reductions they seek by agreeing, before the fiscal cliff arrives, to raise taxes on the rich.

‘There is a growing group of folks who are looking at this and realizing we don’t have a lot of cards as it relates to the tax issue before year’s end.’

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“There is a growing group of folks who are looking at this and realizing we don’t have a lot of cards as it relates to the tax issue before year’s end,” Corker said on “Fox News Sunday.” “A lot of people are putting forth a theory where you go and give the president the rate increase, and all of a sudden the shift goes back to entitlements.’’

Remarks like that represent inching progress in a capital that is consumed with speculation about the fiscal cliff negotiations.

Often the first question in conversation in Washington is, “Are they going over?” That is fiscal-cliff shorthand for whether Congress will allow all of the George W. Bush-era tax cuts to expire on schedule on Jan. 1, resulting in tax increases for all Americans.

Automatic spending cuts that were scheduled during the last fiscal crisis (in the summer of 2011) are also scheduled to take hold. The combined effect of both events would likely drive the economy back into a recession sometime in 2013.

Many observers still believe that the “cliff divers” in Congress will prevail, that no deal will arrive before New Year’s Day, and that House Republicans will then come under intense pressure to accept a tax cut limited to the lower 98 percent.

Others say that Republicans will see the political dangers of such a course, cave on taxes for the wealthy, and seek a deal that permits them to declare a victory on some spending and entitlement cuts.

But that, too, represents a difficult path. Many Democrats, including most of the Massachusetts House delegation, oppose things like raising the Medicare eligibility age.

The posturing and recriminations are expected to dominate the next few weeks. Most congressional staffers and observers say a deal, if there is one, would likely not be inked until shortly before the deadline — say around Christmas, or perhaps even New Year’s Eve.

“Nothing happens in Washington until it has to happen,” said James Manley, a Democratic strategist and consultant. The last week of the year is “when the maximum amount of pressure could be applied and common sense may finally prevail.”

There are numerous complicating factors on taxes. Capital gains and dividend rates also are scheduled to rise at the end of the year, which would have to be discussed in negotiations, and a one-year extension of a payroll tax cut will expire. As it does every year, Congress still needs to pass fixes to the alternative minimum tax and Medicare rates for doctors.

Another factor looming over the discussions is a vote early next year to raise the nation’s borrowing limit, which provides the GOP with an additional negotiating chip and could be wrapped into the current talks.

In another sign that the dispute over taxes may be giving way to the actual contours of a deal, part of the debate has shifted to process. Who should be the first to propose changes to Medicare, Medicaid, and Social Security?

Republicans contend that the president should float a plan on entitlement reforms that Congress could consider. But Democrats say it is up to Boehner to outline what program cuts he will demand in exchange for agreeing to a tax rate increase on the rich.

Neither side wants to take the first step and bear the political risks for proposing cuts to popular benefits that may include such steps as raising the age of Medicare eligibility from 65 to 67.

Democrats think they have the upper hand on this point as well.

“That would be negotiating against ourselves,” to propose Medicare and other entitlement reductions, Senator Charles Schumer, a New York Democrat, said on “Fox News Sunday.” “We realize there have to be other kinds of cuts, and there will be serious negotiations about that.”

Senator Dick Durbin, an Illinois Democrat who is majority whip, said on NBC’s “Meet the Press” that he could accept “means-testing” in Medicare, which requires beneficiaries with greater wealth to pay a higher amount for coverage. But Durbin opposed raising the eligibility age.

“Where does a person turn if they are 65 years of age and the Medicare eligibility age is 67?,” he said. “They have two years there where they may not have the best of health. They need accessible, affordable medical insurance during that period.”

Democrats’ confidence has solidified as Republicans like Corker and Maine Senator Olympia Snowe have called for their party to renew the Bush-era tax cuts for just 98 percent of taxpayers. Polls show that a large majority of Americans would blame the GOP if Congress goes over the fiscal cliff because Republicans insist on protecting tax cuts for the wealthiest 2 percent.

Obama wants to increase tax revenues to the government by $1.6 trillion through a combination of moves, including limiting deductions and raising the top tax rate from 35 percent to 39.6 percent. Boehner has told Obama that he is willing to increase revenue by limiting deductions, which he says would raise $800 billion.

House Republicans reiterated their support Sunday for Boehner’s plan, saying that is the best way to raise revenue and avoid the fiscal cliff.

Asked on “Meet the Press” if House leaders could accept higher rates as part of a broader deal, Representative Kevin McCarthy, a California Republican, replied: “It doesn’t solve the problem. If the president is asking for higher rates he is asking for more revenue. The best way is to close special loopholes.

“The president wants to increase the taxes to continue spending,” he added. “That is the problem with Washington.”

Christopher Rowland can be reached at crowland@ globe.com.
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