By Mark Felsenthal
WASHINGTON (Reuters) - In a major counteroffer that moves the White House and congressional Republicans closer to resolving the "fiscal cliff" standoff, President Barack Obama is now seeking $1.2 trillion from higher tax revenues, including increased rates on those earning more than $400,000 a year, a source familiar with the negotiations said on Monday.
In exchange, the president is willing to agree to $1.22 trillion in spending reductions, including some cuts achieved by changing the way cost of living adjustments are made to Social Security retirement benefits and other programs. By raising the threshold for tax increases to $400,000 from $250,000, the president is yielding on the level he had sought during his successful campaign for re-election in November
"We view this as a good offer that shows we have met the Republicans more than halfway on spending and halfway on revenues," the source said.
House Speaker John Boehner's office called the president's bid a positive, if flawed step toward a compromise on an impasse that many -- from governments to businesses to private citizens -- have been urging the two sides to resolve.
"Any movement away from the unrealistic offers the President has made previously is a step in the right direction, but a proposal that includes $1.3 trillion in revenue for only $930 billion in spending cuts cannot be considered balanced," Boehner spokesman Brendan Buck said.
Obama's spending reduction proposal counts $290 billion in interest among spending reductions, and does not count an estimated $90 billion in increases in revenue from cost of living adjustments, hence the different numbers.
"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," Buck said.
The proposal comes as the president and Boehner seek to iron out differences in an effort to stop automatic tax increases and spending cuts from going into effect early next year. Analysts have warned that the abrupt shock could knock the economy back into recession.
Apparent concessions by the president, who originally proposed $1.6 trillion in new tax revenues, and the House speaker's willingness to entertain the proposal, raised hopes that the two sides can find a way to avoid the dreaded fiscal cliff.
"Everyone I talk to is increasingly optimistic that folks are more serious about a deal -- maybe December 24 or 31, but a deal nevertheless. We'll see," a lobbyist for a major U.S. financial services firm said.
The president's latest offer shows him willing to give on an item that some of his supporters had sought to protect -- linking Social Security benefit increases to the chained consumer price index, a step that would lead to lower payments.
"The chained CPI would be a growing benefit cut that is most harmful for the oldest and poorest beneficiaries of Social Security," said Dave Nathan, a spokesman for AARP, which represents older Americans.
However, the president's proposal would seek to protect those on whom that change would fall hardest, the source said.
The chained, or superlative, CPI, is considered a more accurate gauge of inflation that the government began to report in 2002. It is estimated to be 0.22 percentage points lower than the traditional CPI.
Obama's offer asks for Congress to increase the national borrowing ceiling for two years using a parliamentary procedure proposed by Senate Republican leader Mitch McConnell. That demand may be a hard sell for many lawmakers who may be reluctant to relinquish power over the nation's purse strings.
The president's offer also would seek to provide the sluggish economy a boost by extending unemployment benefits and increasing infrastructure spending.
Obama's proposal would stop harsh automatic spending cuts due to go into effect under the sequestration process. However, some automatic cuts would continue to hang over the administration and Congress's heads as a prod to work out further budget reforms.
The president's proposal calls for "fast track processes" for further tax and spending reforms, the source said.
A senior Republican congressional aide familiar with the negotiations said that while there were "substantive differences" with the White House, he still was hopeful "that we can at some point get to a framework that allows us to move forward on tax and entitlement reform."
The aide emphasized that negotiations with the White House had not yet gotten into detailed discussions on potentially complicated reforms to the tax code and big social programs like Medicare and Medicaid.
For example, the aide said no decisions had been made on where Medicare and Medicaid savings would come from - beneficiaries or medical providers.
"All that is still to be decided," the aide said.
(Additional reporting by Richard Cowan; Editing by Eric Beech and Lisa Shumaker)