House of Representatives Speaker John Boehner's counteroffer — which cuts popular social programs but doesn't raise taxes on the wealthy — was immediately rejected by the White House, which declared the Republicans still weren't ready to "get serious."
At issue are expiration of big tax cuts instituted under the administration of former President George W. Bush and a series of big spending reductions mandated by Congress last year to force the nation's political leaders to finally reach a painful agreement on reducing the country's spiraling deficit.
But in the current climate deal making seems nearly extinct and some economists forecast that failure to reach an agreement by year's end will send the fragile U.S. economy back into recession and cause a spike in already stubbornly high unemployment.
The Republican proposal that Boehner sent to the White House on Monday calls for raising the eligibility age for Medicare, the government health care program for Americans at age 65, and lowering cost-of-living hikes for Social Security, the federal pension program.
Obama's plan, offered last week, would raise taxes by $1.6 trillion on high income Americans over the coming decade but largely exempt health care and pensions programs from budget cuts.
Boehner and other Republicans said they were proposing a "reasonable solution" for negotiations that Boehner says have been going nowhere. The House speaker said he hoped the administration would "respond in a timely and responsible way."
Though the Republican plan proposes to raise $800 billion in higher tax revenue over the same 10 years, it would keep the Bush tax cuts — including those for wealthier earners targeted by Obama — in place for now. Dismissing the idea of raising any tax rates, the Republicans said the new revenue would come from closing loopholes and deductions while lowering rates.
The White House complained the latest offer was still short on details about what loopholes would be closed or deductions eliminated, and it insisted that any compromise include higher tax rates for upper-income earners.
Asked directly whether the country would go over the cliff unless Republican lawmakers backed down, administration officials said yes, though they said they still hoped that could be avoided. Obama continues to believe that going over the cliff would be damaging to the economy, and they signalled that Obama wouldn't insist on bringing the top tax rate all the way back to the 39.6 per cent rates of the Clinton era. The officials spoke on condition of anonymity because they were not authorized to speak publicly about internal White House deliberations.
"Until the Republicans in Congress are willing to get serious about asking the wealthiest to pay slightly higher tax rates, we won't be able to achieve a significant, balanced approach to reduce our deficit our nation needs," White House Communications Director Dan Pfeiffer said in a statement.
Boehner saw the situation as just the reverse.
"After the election I offered to speed this up by putting revenue on the table and unfortunately the White House responded with their la-la land offer that couldn't pass the House, couldn't pass the Senate and it was basically the president's budget from last February," he said Monday.
It has been nearly a week since Obama and Boehner talked directly about the looming cliff, though their staffs have been in contact. Boehner attended a congressional holiday party at the White House Monday night, but avoided the photo line where members get their picture taken with the president and have a few minutes to talk.
Obama met with a bipartisan group of governors, who sought assurances that any cuts in spending as part of an agreement on the fiscal cliff wouldn't shift the burden onto states. The governors said they wanted flexibility from the federal government on certain mandated programs like Medicaid, which provides health care to the poor, to allow them to do more with less.
"We asked for flexibility on how the federal money is passed down to the states and the cuts that are passed down, that we could have some flexibility to do what's in the best interest of our states," said Oklahoma Gov. Mary Fallin, a Republican.
The governors said they were not endorsing any particular proposal but said they wanted to share their ideas on ways that states could play a role in helping reduce the deficit. The governors were meeting later in the day with congressional leaders and said they planned to work with Vice-President Joe Biden in the coming weeks.
The Republican proposal itself revives a host of ideas from failed talks with Obama in the summer of 2011. Then, Obama was willing to discuss a so-called grand bargain, including politically risky ideas such as raising the eligibility age for federal health care, implementing a new inflation adjustment for the pension program's cost-of-living adjustments and requiring wealthier health care recipients to pay more for their benefits.
Monday's Republican plan contains few specifics and anticipates that many details will have to be filled in next year in legislation overhauling the tax code and curbing the growth of benefit programs.
By Republican math, their plan would produce $2.2 trillion in budget savings over the coming decade: $800 billion in higher taxes, $600 billion in savings from costly programs like health care to the elderly, $300 billion from other proposals such as forcing federal workers to contribute more toward their pensions and $300 billion in additional savings from the Pentagon budget and domestic programs funded by Congress each year.
Under the administration's math, Republican aides said, the plan represents $4.6 trillion in 10-year savings. That estimate accounts for earlier cuts enacted during last year's showdown over lifting the government's borrowing cap and also factors in war savings and lower interest payments on the $16.4 trillion national debt.
Last week, the White House delivered to Congress its opening proposal: $1.6 trillion in higher taxes over a decade, a possible extension of the temporary payroll tax cut and heightened presidential power to raise the national debt limit.
In exchange, the president would back $600 billion in spending cuts, including $350 billion from health programs. But he also wants $200 billion in new spending for jobless benefits, public works projects and aid for struggling homeowners. His proposal for raising the ceiling on government borrowing would make it virtually impossible for Congress to block him going forward.
Associated Press writers Andrew Taylor and Matthew Daly contributed to this story.