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Published: 19 December 2012

In the high-stakes poker of the fiscal cliff negotiations, House Speaker John Boehner is playing a game that could be called "Taxes Hold 'Em."

The chief Republican negotiator is navigating a perilous political path by agreeing to some kind of increase in tax rates for wealthy Americans -- a fiscal sin in the eyes of conservatives -- while pushing for more spending cuts and entitlement reforms desired by his party's base.

With the two sides moving closer to a possible agreement, Boehner made a new bet Tuesday by proposing what he called a plan B option to let tax rates go up on income above $1 million while keeping current rates for everyone else.Boehner told reporters his proposal was a possible short-term step while continuing to negotiate a broader deal."We all know that every income tax filer in America is going to pay higher rates come January the first unless Congress acts," Boehner said in reference to the automatic tax hikes and spending cuts of the fiscal cliff. "So I believe it's important that we protect as many American taxpayers as we can."

While addressing part of the fiscal cliff, the Boehner plan B would leave intact government spending cuts, including defense, that are required under a budget deal reached last year to raise the federal debt ceiling. Known as sequestration, the cuts were intended to motivate Congress to reach a deficit reduction deal to avoid them.

The White House and Democratic leaders immediately rejected Boehner's move as insufficient and unrealistic, saying it had no chance of passing Congress.

-A White House statement Wednesday said President Barack Obama "urges the Republican leadership to work with us to resolve remaining differences and find a reasonable solution to this situation today instead of engaging in political exercises that increase the possibility that taxes go up on every American."

Republican Rep. Steve Womack of Arkansas called Boehner's move a negotiating tactic, and GOP leaders sought to corral support for the plan B option.

If they can assure the outcome they seek, they plan to hold votes Thursday on both the Boehner proposal and Obama's longstanding demand to return to higher tax rates of the 1990s on income above $250,000 for families.

Obama made the tax proposal a central theme of his re-election campaign, arguing that it prevented a tax increase for middle-class Americans in a time of needed fiscal austerity.

Polls consistently show strong public support for the Obama plan, and some Republicans have called for giving the president what he wants on the tax issue in order to focus negotiations on the spending cuts and entitlement reforms sought by their party.

As part of the broader talks on reducing the nation's chronic federal deficits and debt, Obama on Monday raised the threshold for the higher tax rates to $400,000.

The Boehner proposal Tuesday would set the threshold at $1 million, and Democrats claimed he made it because he knows he can't get conservative House Republicans to back the agreement he is negotiating with the president.

"The Republicans in the House have rejected their own speaker's proposal at this stage," Rep. Xavier Becerra of California told reporters. "So, this stage it seems like the real negotiation and fight is among Republicans."

Senate Majority Leader Harry Reid of Nevada said Boehner's backup plan appeared to be a result of pressure from tea party conservatives opposing a wider deal.

"It would be a shame if Republicans abandoned productive negotiations due to pressure from the tea party, as they have time and again," Reid said.

Boehner's spokesman, Michael Steel, shot back that the plan B proposal gave Democrats exactly what they wanted -- higher tax rates on millionaires. He noted that the Senate passed a similar measure in 2010, saying that to oppose Boehner's plan now would make Democrats responsible for failing to avoid the fiscal cliff.

That brought a response from a spokesman for Democratic Sen. Charles Schumer of New York, who came up with the 2010 compromise that never won House approval.

Since the 2010 vote, "we've had an election on the president's tax plan, the president won, and Republicans can't turn the clock back," said the spokesman, Brian Fallons.

"It's not surprising Republicans are having buyer's remorse, but we need higher revenues now," Fallons said. "The more revenue we raise up front through a tax rate increase on the wealthy, the less likely the middle class will get hit on the deduction side."

At the White House, spokesman Jay Carney made a similar point, telling reporters that Obama wants to lock in the increased revenue from higher tax rates on top income brackets now.

Expected negotiations next year on a broader reform of the tax system would be "revenue neutral," meaning the changes would result in no increase or decrease of overall tax revenue, Carney said.

Conservatives trying to shrink the federal government generally oppose increasing tax revenue. They are particularly opposed to higher tax rates because history shows that once rates go up, it is difficult to later reduce government revenue by lowering them again.

Obama and Democrats argue that increased revenue, including higher tax rates on the wealthy, must be part of broader deficit reduction to prevent the middle class from getting hit too hard.

The president previously said that once Republicans agreed to higher tax rates on wealthy Americans, he would be willing to compromise on spending cuts and entitlement reforms sought by Boehner as part of what the president calls a balanced approach.

After weeks of little progress and much ideological pontificating, both sides started making concessions after two face-to-face meetings last week.

Over the weekend, Boehner offered for the first time to accept tax rate increases on household income of $1 million and above, sources said. The speaker also offered to allow the president to raise the debt ceiling in 2013 without a messy political fight, another key Obama demand.

In response, Obama on Monday offered $200 million in new cuts to discretionary federal government spending, divided evenly between defense and non-defense programs.

The president also included for the first time a provision to change the formula for adjusting entitlement benefits for inflation based on the consumer price index, or CPI, and he dropped an extension of a payroll tax cut from the past two years.

According to a source who provided CNN with details of Obama's counteroffer, it included $1.2 trillion in revenue increases and $1.22 trillion in spending reductions.

However, Republicans disputed those figures, saying the Obama offer really was $1.3 trillion in additional revenue and $850 billion in spending reductions.

Working out those differences appeared to be a key to reaching a comprehensive deficit reduction deal by the end of the year. At the same time, Boehner's plan B offer signaled a possible diversion for now, though

Obama's latest offer brought the two sides billions of dollars closer, but it also generated protests from the liberal base of the Democratic Party because it included some benefit cuts in entitlement programs such as Social Security, Medicare and Medicaid.

Justin Ruben, executive director of MoveOn, the liberal movement that backed Obama's presidential campaigns, said the group's members would consider any benefit cuts "a betrayal that sells out working and middle-class families."

In particular, liberals cited concessions that Obama made in his Monday counteroffer, including the new inflation formula applied to benefits that is called chained CPI.

The chained CPI includes assumptions on consumer habits with regard to rising prices, such as seeking cheaper alternatives, and would result in smaller benefit increases in future years.

Statistics supplied by opponents say the change would mean Social Security recipients would get $6,000 less in benefits over the first 15 years of chained CPI.

However, Carney, the White House spokesman, said Obama's CPI proposal includes a provision "that would protect vulnerable communities including the very elderly when it comes to Social Security recipients." He called the president's acceptance of the chained CPI a signal of his willingness to compromise.

It was the latest in a series of concessions by both sides since last week's school shooting in Connecticut that killed 20 youngsters.

Asked if the massacre affected what had been incremental negotiations, Boehner said: "I think both sides would agree to that."

"This is a difficult time for Americans," he said, adding that "it's not a time to put Americans through more stress."

Carney acknowledged that the Newtown tragedy had affected all Americans and "reminds us what really matters," but he stopped short of saying it had directly affected the talks.

"It's obviously hard to know what the impact of an event like that is on the way that lawmakers and others in Washington approach other issues," he told reporters. He later added, "To the extent that an event like that, as tragic as it is, brings us a little closer together, both in the nation and in Washington, that would be a good thing, but it's hard to measure an impact like that."

Congress had been scheduled to end its work last week, but legislators returned to Washington on Monday and leaders warned members to be prepared to stay until Christmas, return after the holiday and stay until the end of the year.

Last week, U.S. Rep. Chris Van Hollen, D-Maryland, said a deal would have to be reached by Christmas to allow time for the legislative process to approve the required measure or measures by the end of the year.

CNN's Dana Bash, Deirdre Walsh and Brianna Keilar contributed to this report.


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