WASHINGTON — President Obama trimmed his demand for tax increases on the wealthy Monday, making a substantial counteroffer as he and House Speaker John A. Boehner reconvened privately at the White House.
Crucial differences remain, but the quickened pace of the budget talks suggested the men are engaged in a serious effort to bridge the partisan divide before the holidays — and before the year-end "fiscal cliff" leads to economically dire tax increases and spending cuts.
The president offered to raise tax rates on household income above $400,000, according to a source familiar with the talks who was not authorized to speak publicly about them. The rate would rise from 35% to 39.6%. The president campaigned for reelection on a plan to require households with incomes above $250,000 to pay more, and, until recently, had emphasized that his victory and postelection polls showed that the public agreed with him.
Obama's overture came after Boehner suggested Friday in a phone call that he would be willing to raise tax rates for those earning more than $1 million — a major concession for the Ohio Republican, who had resisted any increase in the top rates. Aides on both sides were buoyed after that conversation, even though the White House rejected the offer.
After Monday's session, both sides remained optimistic. One senior administration official who requested anonymity to discuss the White House's thinking said the talks reflected "a more robust level of engagement."
Boehner panned the president's proposal, however, in an indication of the difficulty the speaker will have convincing his party's conservative flank to approve any deal with a tax rate increase.
Obama's offer "cannot be considered balanced," said Boehner spokesman Michael Steel. "We hope to continue discussions with the president so we can reach an agreement that is truly balanced and begins to solve our spending problem."
After weeks of sputtering negotiations, the two sides have substantially narrowed their differences. The latest White House offer would yield $1.2 trillion in new revenue over a decade, to be matched with a similar amount of spending reductions.
Boehner's latest proposal was for $1 trillion in new revenue, and talks at the White House earlier Monday involved $1 trillion in cuts.
Obama is now offering twice as much in cuts as he initially put on the table. His proposal includes shaving $400 billion from healthcare programs and a similar amount from other domestic spending. Safety net programs also would be reduced, a prospect making Democrats uneasy.
One change sure to face intense resistance from Obama's allies on Capitol Hill would trim the annual cost-of-living adjustment for those receiving government assistance, probably including Social Security, with protections only for the oldest and poorest Americans.
Yet Obama also proposes to continue long-term unemployment benefits, as well as added infrastructure spending, nodding to other Democratic priorities. He dropped plans to extend the expiring payroll tax break, which Democrats have backed as necessary for economic stimulus, and intends to expedite tax and spending overhauls.
Failure to reach consensus by the end of the month would result in $500 billion in federal spending cuts and tax increases that would mean an estimated $2,200 hike on the average American family.
Boehner will meet Tuesday morning with rank-and-file GOP lawmakers, where he is expected to air the latest proposals and gauge the reaction — particularly from the more conservative House members who constitute the majority of his caucus.
Republicans will almost certainly balk at how the White House calculates the value of the president's proposed deficit reduction package, rejecting the administration's approach of counting accrued savings from last year's budget agreement and from winding down the wars in Iraq and Afghanistan. Including those measures, the White House says, the president's plan would reduce the deficit by more than $4 trillion over a decade.
The GOP also may be critical of Obama's plans to halt most of the automatic spending cuts, which are scheduled to take effect next year.
One key area where stark differences remain is the nation's debt ceiling, which must rise early next year to allow the country to pay its bills.
Boehner offered to increase the federal government's borrowing capacity for another year if the White House agreed to an equal amount of spending cuts, as has been his long-stated position.
Obama's counteroffer seeks a two-year extension of the debt limit, which would be difficult for Boehner's conservative Republicans to accept with the level of cuts now on the table from the administration.
The 45-minute meeting Monday at the White House was the third direct negotiation between Obama and Boehner in little more than a week.
The House had been scheduled to start its holiday vacation Monday. Instead, it joined the Senate in Washington the week before Christmas.
christi.parsons@latimes.com
lisa.mascaro@latimes.com
Michael A. Memoli in the Washington bureau contributed to this report.
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