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CNN's Dana Bash just reported that the Senate talks to resolve the fiscal cliff have hit a major setback over Republicans demands that even a scaled-down "mini-deal" for short-term compromise include the controversial "chained-CPI" concession, previously offered by President Obama for the more complete package of a "grand bargain," in Source:Fiscal cliff talks see major setback.

Washington (CNN) – A Democratic source familiar with the talks tells CNN they have hit a “major setback” because Republicans are now insisting that any fiscal cliff deal include “chained CPI," which Democrats consider a “poison pill.”

The Democratic source says they understand the president offered this in talks with House Speaker John Boehner, but Democrats say that was in the context of a larger deal - in exchange for changes to the way the debt ceiling is approached - which is not in the plan anymore.

Senators have a self-imposed deadline of 3:00 p.m. ET, before reporting to their rank and file that the negotiations have failed to achieve a resolution, at their unusual Sunday afternoon session.

Both Senate Majority Leader Harry Reid, and Minority Leader Mitch McConnell just delivered political posturing speeches blaming the other side for the stalemate, although Reid was more gracious granting the McConnell has negotiated in good faith, but that the two side are just too far about.

The two sides are still reported to be unable to agree on the threshold level of the middle-class tax cut extensions, -- with Democrats proposing $250,000 and some Republicans insisting on $400,000 and extensions of the real estate tax. Democratic Senator apparently are willing to give on one, or the other, but not both, in a mini-deal.

CNN is also told that if things don’t change by the time senators meet at 3 p.m. ET, Democratic leaders will have to tell their rank and file that things are not there yet.

CNN reports their Democratic source also says:

This source further said that they will decide by early this evening whether to pull the plug and put the fallback bill on the floor, a bill that keeps tax rates in place for those making less than $250,000, fixes the Alternative Minimum Tax, includes the so-called doc fix, and extends unemployment benefits.

I don't believe Democrats should sacrifice the chained-CPI even for a "grand-bargain," let along a "mini-deal.

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11:54 AM PT: Susan Davis and David Jackson of USA Today add 'Fiscal cliff' negotiations stall on Capitol Hill:

 

"At this stage, we are not able to make a counter-offer," said Senate Majority Leader Harry Reid, D-Nev., in response to the most recent offer made by Senate Minority Leader Mitch McConnell, R-Ky., on Saturday evening. "Perhaps as the day moves on I will be able to." ...

Negotiations hit a wall when McConnell asked to include a provision to change the way cost-of-living adjustments are made for Social Security benefits, according to a Senate Democratic aide who isn't authorized to discuss the status of negotiations and spoke on condition of anonymity. Republicans broadly support the proposal, which could ease passage for a final legislative package in a divided Congress, but the proposal is a non-starter for Democrats.

"I am concerned about the lack of urgency," McConnell said, because he has yet to receive a counteroffer from Reid. "I want everyone to know I'm willing to get this done, but I need a dance partner."


USA Today and several other outlets are reporting that Mitch McConnell has reached out to Vice President Biden "to see if he could help jumpstart negotiations on his side." CNN adds that McConnell is asking Biden to see if he can reach President Obama apparently to jostle Senate Democrats to yield.

12:07 PM PT: Since the USA Today update second sources the "chained-CPI" reports of  CNN report, so I've selected subordinate paragraphs from Manu Raju's and John Bresnahan's report to highlight details not yet reported here, in ‘Major setback’ in fiscal cliff talks. h/t to dangeo for bringing this link to my attention.

Senate Majority Leader Harry Reid says "we are not going to have chained-CPI" in a mini-deal.  

Republicans are highlighting what they say is President Obama's willing to include "chained CPI" but Democrats are countering that was only for a complete "grand bargain" not a "mini-deal."

Don Stewart, a spokesman for McConnell, declined to comment on the status of the negotiations. But Stewart pointed to comments Obama made in a weekend interview where the president highlighted his willingness to include the chained CPI proposal as an example of how he was willing to compromise to reach a larger-scale deficit reduction agreement.

“Well but again David as you know, one of the proposals we made was something called chain CPI, which sounds real technical, but basically makes an adjustment in terms of how inflation is calculated for Social Security,” Obama told host David Gregory on “Meet the Press.” “Highly unpopular among Democrats, not something supported by AARP, but in pursuit of strengthening Social Security for the long-term, I’m willing to make those decisions.” ...

Other senators were more optimistic, including Lindsey Graham (R-S.C.). ... ”Hats off to the president,” Graham said on “Fox News Sunday.” “He stood his ground. He’s going to get tax rate increases. … It will be a political victory for the president.”

12:19 PM PT: whoa! ABC has the most details on the deal Mitch McConnell offered Reid last night aT 7:30 and I agree with the Demcoratic aid who says we are now further apart then we were 24 hours ago.  This is a setback! Major Setback in Last-Ditch

A senior Democratic aide tells me that, although talks continue, the McConnell offer was “a major setback.” .... “We are hugely disappointed,” the aide aid tells ABC News.

The McConnell offer, according to the aide, included:

- An extension of the Bush era tax cuts for taxpayers who earn “well above” the $250,000 income level that Democrats proposed

- An extension of the current estate tax

- A reduction in cost of living increases for Social Security recipients (“chained CPI“), which is a major sticking point for some Democrats

- No increase in the debt ceiling, which would set up another tough fiscal debate early in the new year

For Democrats, the Social Security provision, which was offered by President Obama as part of a grand bargain that would have included $1.4 trillion in tax cuts and increase in the debt ceiling, is a non-starter and was never going to be part of this stop-gap deal.

“We are now further apart than we were 24 hours ago,” the aide says.

Reid responsed:

“At this stage we’re not able to make a counteroffer,” Reid said noting that he’s had numerous conversations with President Obama yet the two parties are still far apart on some big issues, “I don’t have a counter-offer to make. Perhaps as the day wears on I will be able to.”

12:31 PM PT: CBS News reports Senate Majority Leader Reid drawing a line in the sand over chained CPI cuts. Reid Not overly optimistic" on "cliff" talks



Still, Reid said, "The one thing I do want to mention is that we're not gonna have any Social Security cuts. At this stage, that just doesn't seem appropriate.

"We're open to discussion about entitlement reforms, but we're going to have to take it in a different direction," he continued. "We're willing to make difficult concessions as part of a balanced, comprehensive agreement. But we'll not agree to cut Social Security benefits as part of a smaller, short-term agreement, especially if that agreement gives more handouts to the rich."

Reid advised his fellow senators to "hang loose" in the event that a deal is reached and a vote comes up later this evening.

"At some point in the negotiating process, it appears that there are things that stop us from moving forward," he said. "I hope we're not there, but we're getting real close. And that's why I still hold out hope that we can get something done. But I'm not overly optimistic, but I am cautiously optimistic that we can get something done."

12:39 PM PT: The LA Times brings us additinal details about the details of the Democrat-Republican seperation on the tax threshold and the estate taxes.

While Republicans have signaled  a willingness to raise taxes on income  higher than $500,000 — twice the $250,000 threshold Obama campaigned on — Democrats appear unwilling to broker that deal if it also includes lower tax rates on inheritances, as Republicans want.

“So from the Republican side, those remain their highest priorities: protecting the highest-income individuals from tax increases and protecting up to 6,000 estates a year from paying an additional $1 million,” Durbin said. “We see it differently.”

Republican Sen. Tom Coburn of Oklahoma disputed that characterization, saying the new revenue would not resolve the nation's deficit problems unless spending on Medicare and other programs is also cut back. But he wasn't optimistic either. ... “You know, I don't think anybody knows what's going to happen,” Coburn said on the same show. “The odds are that we've not seen the leadership on either side of the aisle to solve this problem.”

1:07 PM PT: In The New Republic, Jonathan Cohn writes Over the Cliff? A Better Deal Would Be Worth the Wait, which I agree with.

Do Obama and the Democrats get that? It’s impossible to know. But Friday’s news was at least a little bit encouraging. During the White House meeting, Obama apparently offered no new concessions. Instead, he made a new demand: If weekend talks between the parties break down, Obama said, he wants both houses to hold an up-or-down vote on a Democratic bill. Later, Senate Majority Leader Harry Reid announced he wanted to bring just such a bill to a vote on Monday. Not only would that bill raise rates on annual household incomes above $250,000 and extend jobless benefits for the long-term unemployed; according to a senior Democratic aide, the bill would also extend those critical tax breaks for working families and children. (The bill would also put off the cut in Medicare physician payments, according to the aide. Extending the payroll tax holiday seems to be off the agenda, to my great chagrin.)

Senate Minority Leader Mitch McConnell might filibuster such a bill anyway; even if he didn't, Boehner would be unlikely to hold a vote on it, at least right away. But Obama's demand and Reid's cooperation suggest the Democrats want to apply pressure and are willing to hold out a little longer—that they understand a mediocre bill on December 31 is worth less than a good bill on January 4.

HuffPo has a new teaser headline which is good that Republicans think they've won the election and are demanding cuts to Social Security. Which I wish I had thought of for this post.

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