Negotiations broke down Sunday after McConnell pressed Reid to include in a year-end deal a provision that would re-index Social Security payments to a less generous measurement of inflation called chained CPI. Dems say including Social Security cuts in a deal that doesn't increase the debt limit is a non-starter.
On the Senate floor Sunday afternoon, Reid officially quashed the offer. "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 small or short-term agreement, especially if that agreement gives more handouts to the rich."
In other words, Dems might swallow chained CPI or other cuts to social programs as part of a broader agreement in 2013, but current negotiations must focus on the narrow issue of protecting middle-class tax payers from a tax increase.
So what comes next? After Reid told McConnell he was unprepared to provide a counter-offer, a senior Senate Democratic aide said "this might be it."
McConnell's offer suggests a narrowly tailored agreement on taxes -- one that includes no spending concessions from Democrats, and allows tax rates on top earners to ride -- lacks broad support from his members.
Late update: Republicans have dropped the chained CPI demand. Senators in the Capitol suggested that the development could kickstart negotiations, but Senate Majority Leader Harry Reid has yet to provide Republicans a counteroffer.