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Obama and Boehner Circle Each Other on Budget Impasse Obama to Insist on Tax Increase for the Wealthy
(about 9 hours later)
WASHINGTON – President Obama and the House speaker, John A. Boehner, circled each other warily on Friday, defending their competing approaches for resolving the budget impasse even as both professed their willingness to reach common ground. WASHINGTON — President Obama said Friday that he would insist that tax increases on affluent Americans be part of any agreement to avoid a year-end fiscal crisis, setting up a possible confrontation with Congressional Republicans who say they will oppose a rise in tax rates for the rich.
Mr. Obama, in his first formal remarks since the night of his re-election, said he would open discussions with Congressional leaders next week to seek a compromise, and then, before an applauding crowd of supporters in the White House’s East Room, defended the "detailed plan" that he campaigned on — including higher taxes on the wealthy. In his first remarks from the White House since his re-election, Mr. Obama made it clear that he believed his victory had validated his relentless campaign call for wealthier Americans to pay more and that he expected Republicans to heed that message.
“I’m not wedded to every detail of my plan. I am open to compromise. I am open to new ideas,” he said. “But I refuse to accept any approach that isn’t balanced.” “I just want to point out this was a central question during the election,” he said in brief remarks in the East Room. “It was debated over and over again. And on Tuesday night, we found out that the majority of Americans agree with my approach.”
“We have to combine spending cuts with revenue, and that means asking the wealthiest Americans to pay a little more in taxes,” he said, calling for Congress to immediately extend existing tax rates for 98 percent of taxpayers. Mr. Obama said he had invited Congressional leaders to the White House next week to begin talks as they return for a lame-duck session of Congress. He said he was willing to make some concessions as long as the final fiscal bargain was properly balanced between new tax revenue and spending cuts.
Mr. Boehner, citing a “cordial” conversation with the president on the morning after the election, said that he was “hopeful that productive conversations can begin soon so that we can forge an agreement that can pass the Congress.” “I’m not wedded to every detail of my plan,” Mr. Obama said. “I’m open to compromise.”
But he insisted, as the Repulicans put it throughout the campaign, that “the problem with raising tax rates on the wealthiest Americans is that more than half of them are small-business owners.” He added, “Raising tax rates will slow down our ability to create the jobs that everyone says they want.” At the same time, he encouraged Congress to quickly pass an extension of the existing lower rates for those making under $250,000 even while the broader negotiations take place.
Their dueling appearances seemed almost like a reprise of the debates over tax proposals, which were the sharpest point of division in the presidential election. “While there may be disagreement in Congress over whether or not to raise taxes on folks making over $250,000 a year, nobody — not Republicans, not Democrats — want taxes to go up for folks making under $250,000 a year,” he said. “So let’s not wait.”
Asked if the results of the election had weakened his hand, Mr. Boehner said: “There is a Republican majority here in the House. The American people re-elected the Republican majority.” The president’s comments came shortly after Speaker John A. Boehner, who had been striking a conciliatory tone since Republican election losses in the Senate and the House, told reporters that Republicans had won a mandate of their own by retaining control of the House and that he supported continuing rates enacted in the Bush-era tax cuts for all income levels.
Indeed, his hands are tied partly because members of his party still have a wary eye on the electoral landscape. Senator Mitch McConnell of Kentucky, the Republican leader and a crucial player in the budget talks, is up for re-election in 2014 and may resist any deal that could foster opposition back home. “Raising tax rates will slow down our ability to create the jobs that everyone says they want,” said Mr. Boehner, who said he favored generating any new federal revenue to offset the deficit by closing tax loopholes and limiting deductions.
But many members of Congress clearly see recent events as creating an opening in the postelection session of Congress, when some retiring and defeated lawmakers could have a freer hand on voting for legislation, absent political consequences. Republicans were weakened by losing seats in both the House and the Senate, while Democrats are eager to move to issues like immigration, which animated Latino voters and helped deliver victory on Tuesday. “It’s clear that there are a lot of special interest loopholes in the tax code, both corporate and personal,” he said. “It’s also clear that there are all kinds of deductions, some of which make sense; others don’t. And by lowering rates and cleaning up the tax code, we know we’re going to get more economic growth.”
“The conditions are there to act,” Senator Bob Corker, Republican of Tennessee, said on Thursday. “I think the environment is different now.” The president and Mr. Boehner were careful with their language and left room for compromise despite their fundamental differences about shifting more of the tax burden to high-income Americans. Mr. Boehner would not be very specific on what his goal might be for raising new federal tax dollars.
One reason is that if Washington were to remain in complete gridlock, all tax brackets would revert automatically to those under President Bill Clinton and spending would be cut automatically across the board – the abrupt changing of economic gears known as the “fiscal cliff” because of its likely economic effects. “I don’t want to box myself in,” he said. “I don’t want to box anybody else in. I think it’s important for us to come to an agreement with the president. But this is his opportunity to lead.”
The nonpartisan Congressional Budget Office underscored the stakes in a report Thursday that framed Washington’s dilemma. It said that if automatic spending cuts went into force and all the Bush-era tax cuts expired, the nation would slip into recession next year and unemployment would rise to 9.1 percent, from October’s rate of 7.9 percent. But simply canceling those deficit-reduction measures would risk a financial crisis that would make matters worse, the report said. The speaker, who has struggled with his more conservative rank and file in the past, said he was confident that he could pass a deal if one was reached with the White House. “When the president and I have been able to come to an agreement, there has been no problem getting it passed here in the House,” he said.
The report suggested that allowing the Bush-era tax cuts to expire for households earning more than $250,000 a year — favored by the White House and its Democratic allies, but strenuously opposed by Congressional Republicans — would have relatively modest economic effects. House Republican leadership aides found some positive signals in Mr. Obama’s combative tone. They noted that he never specified he wants tax rates to rise, only that he wants additional revenues generated by taxes on the rich. That would give both sides the latitude to devise a restructured tax code that eliminates or limits tax deductions and credits for the rich — or that follows Mitt Romney’s proposal to cap deductions at a set limit for rich households, though many analysts say that approach alone cannot raise the revenue Democrats want.
Congressional aides said that on a conference call of House Republicans on Thursday, a number of lawmakers spoke up to say they needed to give their leaders breathing room and avoid brinkmanship. Any agreement to avert a fiscal crisis in January, when hundreds of billions of dollars in automatic tax increases and spending cuts kick in, now revolves around the definition of tax increases. Mr. Boehner is holding the line against any increase in tax rates, even for the richest Americans, who currently are in the 35 percent tax bracket. But he is leaving open the possibility of a tax overhaul that raises more revenue than the existing code.
“I don’t want to box myself in,” Mr. Boehner said on Friday. “I don’t want to box anybody else in. I think it’s important for us to come to an agreement with the president. But this is his opportunity to lead.” Representative Steny H. Hoyer of Maryland, the No. 2 Democrat, echoed the view at the White House that Americans want to see taxes on the wealthy go up. In a statement after Mr. Obama spoke, Mr. Hoyer said that “on Tuesday, the American people made it clear that they support a balanced approach to bring down deficits and set our nation back on a sound fiscal path — one that does not ask working families and those struggling to get by to bear the burden of deficit reduction, but instead asks the wealthiest Americans to pay their fair share.”
But the forces arrayed against a budget deal remain powerful, and the gap between the parties — at least in their public postures — is wide. Liberals, backed by Senator Harry Reid of Nevada, the majority leader, say Social Security should not be part of any deal. While Mr. Obama was careful not to demand that tax rates rise, Jay Carney, the White House press secretary, said just an hour later that the president would veto any legislation extending the expiring tax cuts for families making $250,000 or more.
“House Republicans must end their intransigence on tax cuts for the very wealthy and sit down on a bipartisan basis to finish the work of this Congress,” said Representative Sander M. Levin of Michigan, the ranking Democrat on the House Ways and Means Committee, where tax legislation is written. For all the talk of compromise, neither side offered any suggestion of where it might back down. While both sides agree on the need to avoid triggering the automatic tax increases and spending cuts that occur if there is no deal — and there is deep concern that failure could harm the economy — the shape of a final compromise remains unclear. New reports this week by the Congressional Budget Office found that the automatic tax increases and spending cuts would cut the deficit by $503 billion through next September. But the reports said that the austerity could cause the economy to shrink by 0.5 percent next year, and would lead to the loss of millions of jobs.
Mr. Boehner said that “by lowering rates and cleaning up the tax code, we know that we’re going to get more economic growth.” The Congressional leaders will be heading to the White House on Friday, administration officials said, just before Mr. Obama leaves for Cambodia, Myanmar and Thailand, where he will attend economic meetings with world leaders. He is certain to come under pressure there to reach a deal with Republicans since the American economy is doing better than most other global economies, and a slowdown in the United States is widely viewed as potentially catastrophic to the global economy.
“It’ll bring jobs back to America,” he said. “It’ll bring more revenue.” “It’s time to get back to work,” the president said at the White House. “And there is plenty of work to do.”
But a second Congressional Budget Office report released Thursday threw cold water on Republican beliefs that a simplified tax code that lowered income and payroll taxes and closed loopholes to make up for lost revenue would substantially close the deficit by increasing economic growth. Such a plan would raise about $100 billion a year by 2020, far less than what Democrats say is necessary, the report said.
There are other pressing and potentially costly matters facing the lame-duck Congress, too. One is an extension and overhaul of farm programs, including emergency relief for the drought, which persists over much of the nation’s middle.
Another is providing federal assistance to the states hit hard by Hurricane Sandy, a bill that could easily come to tens of billions of dollars.
Then there is the looming deadline for raising the debt ceiling, a matter that may prove hard to untangle from the related questions of spending and taxation.
“It is an issue that is going to have to be addressed, sooner rather than later, " Mr. Boehner said on Friday.
The Treasury Department expects the country to hit its debt ceiling, a legal limit on the amount the government is allowed to borrow, close to the end of the year. That would give Congress only a matter of weeks to raise the ceiling, now about $16.4 trillion, before sending financial markets into a panic.
In 2011, Congressional Republicans would not raise the debt ceiling without a broader agreement to cut the country’s deficit and set it on a better fiscal path. The impasse over finding spending cuts and tax increases to do that led to the creation of the automatic spending cuts that loom on Jan. 1, the same time the Bush-era tax cuts were also set to expire.

Reporting was contributed by Jonathan Weisman, Jennifer Steinhauer, Annie Lowrey and Helene Cooper.