Fiscal talks hobbled by new finger-pointing

WASHINGTON — Optimism surrounding secretive high-level budget talks faded quickly Tuesday amid a fresh round of partisan finger-pointing, reducing the chances of a resolution to the fiscal standoff by Christmas.

House Speaker John A. Boehner (R-Ohio) spoke to President Obama by phone late in the evening after presenting a GOP counteroffer.

Republicans, meanwhile, showed further signs of political division. Top members of the party, including former Mississippi Gov. Haley Barbour, said the GOP should accept the president’s offer to raise tax rates on the top 2% of Americans in exchange for spending cuts.

“If you have the whole package, I would hold my nose — despite the fact that raising those two tax brackets is bad economics, bad for jobs, is going to hurt the economy,” Barbour, a past chairman of the Republican National Committee, said on MSNBC’s “Morning Joe.” “I would hold my nose to get the other done.”

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The Business Roundtable, made up of chief executives from some of the nation’s largest companies, shifted from its long-standing opposition to tax rate increases.

“We now feel that the only compromise after the election that’s possible is one … of comprehensive and meaningful tax and entitlement reforms,” said John Engler, president of the organization. “This is the time for a compromise. It’s the principled thing for elected officials to do.”

But Republican negotiators continued to hold out for deeper reductions to Medicare, Medicaid, Social Security and other safety net programs than the president has been willing to accept, contributing to the stalemate that could result in a tax increase for most Americans. Failure to strike a deal by Dec. 31, when existing tax rates expire, would result in a $2,200 tax hike for the average American family in the new year.

Tuesday saw a return to the high-volume blame game that has characterized discussions, dashing the brief moment of quiet optimism that emerged after Boehner and Obama met privately over the weekend at the White House.

Each side accused the other of slow-walking negotiations, refusing to compromise until the final hour.

“Now even if we did exactly what the president wants, we would see red ink for as far as the eye can see,” Boehner said Tuesday, making rare comments on the House floor. “Washington has a spending problem. Let’s be honest — we’re broke.”

The Senate’s top Democrat, Majority Leader Harry Reid of Nevada, countered: “The only thing standing in the way of an agreement is Republicans.... I think it’s going to be extremely difficult to get it done before Christmas.”

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Details of the new Republican offer were sparse, but some were cheered that at least the two leaders continued talking.

“I remain optimistic,” Obama told Barbara Walters of ABC News. “I’d like to see a big package. But the most important thing we can do is make sure that middle-class taxes do not go up on Jan. 1.”

The White House on Monday scaled back its request for new revenue over the next decade to $1.4 trillion from $1.6 trillion. The money would come largely from higher taxes on earnings exceeding $250,000 for couples and $200,000 for singles. Obama has also offered $400 billion in spending cuts, mainly from Medicare, with trims to Medicaid and other domestic programs.

Republicans have taken a reverse approach with their $2.2-trillion package suggesting half as much new revenue, which would come from future tax changes, and more than three times the spending cuts.

It was unclear whether that was the amount of the new GOP offer, which a Boehner spokesman said “would achieve tax and entitlement reform.” He declined to offer details.

Barbour was the latest of several key Republicans to suggest that their party should prevent the year-end tax increase by agreeing to Obama’s proposal to raise rates on wealthier households as part of a compromise.

Top GOP leaders reacted swiftly to hold the line against such sentiments, saying smaller businesses would be hit hard if tax rates rise. Studies show 3% of small-business owners would be affected by the tax increase.

“Big business may support raising tax rates on small businesses, but I do not,” said Rep. Dave Camp (R-Mich.), chairman of the House Ways and Means Committee, and a strategist in Boehner’s daily budget briefings. “The solution to the ‘fiscal cliff’ isn’t higher tax rates.”

lisa.mascaro@latimes.com

melanie.mason@latimes.com

Michael A. Memoli, Kathleen Hennessey and Christi Parsons in the Washington bureau contributed to this report.