Top-tier earners must pay more, Obama insists

Then GOP to see gains, he says

Wednesday, December 5, 2012

— President Barack Obama on Tuesday sketched out a potential year-end deal pairing tax increases and spending cuts to avert the “fiscal cliff” while insisting that Republicans must accept higher tax rates for top earners as a condition for negotiations.

“We have the potential of getting a deal done,” Obama said at the White House on Bloomberg Television in his first interview since winning re-election. “We’re going to have to see the rates on the top 2 percent go up, and we’re not going to be able to get a deal without it.”

Also Tuesday, a bipartisan group of governors that included Arkansas’ Mike Beebe urged the president in a meeting to quickly compromise with Congress to avert the fiscal cliff and avoid hurting economic recoveries in their states.

Obama’s comments in the interview underscored both the possibilities and the hurdles for breaking the stalemate in talks to avoid more than $600 billion in automatic tax increases and spending cuts that will begin to take effect if the president and Congress fail to reach a deal to reduce the deficit before year’s end.

The president said he would be “flexible” yet named a price Republicans have so far been unwilling to pay — tax-rate increases — as the only path to reaching a deal.

“It’s not me being stub- born; it’s not me being partisan,” Obama said. “It’s just a matter of math.”

In greater detail than he has offered since he won a second term last month, Obama outlined his vision for a two-stage process wherein both he and congressional Republicans would get immediate “down payments” on their top priorities. That would be followed by more sweeping changes in 2013, he said.

Compromise would mean the president and Democrats accept more spending reductions this year — potentially including slowing the growth of Medicare benefits — and Republicans agree to tax-rate increases.

Obama spoke the day after House Speaker John Boehner sent a letter to the White House in which he laid out a proposal that included $2.2 trillion in spending cuts and new tax revenue, without raising rates.

“Unfortunately,” Obama said, Boehner’s proposal “right now is still out of balance.”

The speaker, an Ohio Republican, had called Obama’s initial offer a “la-la land” proposal.

Reacting to the president’s latest comments, Boehner said Obama “has an obligation” to present a counterproposal that Congress can pass — a test he said Obama’s current plan fails — and that Republicans are “ready and eager” to discuss such an offer with him.

“If the president really wants to avoid sending the economy over the fiscal cliff,” Boehner said in a statement, “he has done nothing to demonstrate it.”

Senate Minority Leader Mitch McConnell of Kentucky lamented the lack of progress in the negotiations. “We’ve wasted an enormous amount of time sparring back and forth in public, and it strikes me as a good time to get serious about the proposals,” he told reporters on Capitol Hill. “I had hoped we would be accomplishing more in the real talks that are going on privately.”

Obama is insisting that any deal must raise income tax rates on individuals who earn $200,000 or more a year and married couples who earn $250,000 or more annually, while Republicans are demanding cuts to entitlement benefits.

Negotiators have about four weeks left to break the logjam. The Congressional Budget Office has warned that failing to do so would pitch the U.S. economy into a recession.

Even as he insisted on higher tax rates, Obama left room for compromise with Republicans in endgame talks.

He sidestepped a question about whether he would accept a measure that increases the top rate from 35 percent to 37 percent or 38 percent — short of the 39.6 percent marginal rate when the current levels went into effect. Obama didn’t flatly rule out entitlement cuts, which included a change in the annual cost-of-living adjustment for Medicare, the government health program for the elderly and disabled.

“I am willing to look at anything that strengthens our system,” Obama said. Still, when asked whether he would be open to benefit cuts, the president said: “Well, no, that’s not what I’m saying.”

On taxes, Obama said that with a 2013 tax overhaul: “It’s possible that we may be able to lower rates by broadening the base.”

While the president’s latest comments drew derision from many Republican lawmakers, who said his position would thwart a deal, several said the president had raised their hopes for a compromise.

“I think that’s hopeful, to be honest with you,” said Rep. Walter Jones, a North Carolina Republican. “If there’s going to be an increase, but less than anticipated, that’s a good point to talk.”

Rep. Tom Cole, an Oklahoma Republican who has suggested his party could be open to raising tax rates, said the two sides are closer than they appear. “I actually think we are moving in the right direction,” Cole told reporters at the Capitol on Tuesday. “I don’t think they’re as far apart as it seems.”

Obama also made it clear in the interview that he wants an increase in the U.S. debt limit as part of any compromise in the coming weeks. The U.S. will reach the $16.4 trillion debt ceiling this year, though Treasury can use socalled extraordinary measures to extend the deadline until at least mid-February, according to the Congressional Budget Office.

The president said business leaders have told him they don’t want to see another “debt ceiling crisis” early next year.

“America is poised to take off,” Obama said. “Let’s make sure that we don’t have a selfinflicted wound, because there are a lot of silly games played up on Capitol Hill.”

Obama has met at the White House with business and financial industry executives at least three times over the past three weeks. Today, he’ll address more than 100 chief executive officers at the quarterly meeting of the Business Roundtable in Washington.

Boehner and Obama, who last year fell short of forging a bipartisan bargain to reduce the deficit while averting a breach of the U.S. government’s legal borrowing limit, have yet to engage in the personal negotiations that previously brought them to the brink of a deal.

At a White House holiday party Monday night, the two men who hold the keys to a compromise did not speak even to exchange pleasantries, according to aides to both.

“Speaker Boehner and I speak frequently,” Obama said. “I don’t think that the issue right now has to do with sitting in a room.”

Both are facing pressure from their respective political bases to resist a compromise, with Boehner’s Tea Partyinfused House Republicans balking at raising tax rates while labor and other Democratic-aligned interest groups reject the idea of cutting entitlements, including Medicare and Social Security.

Some fiscally conservative lawmakers are criticizing Boehner for proposing revenue-raising tax changes in his latest offer. Republican Sen. Jim DeMint of South Carolina said Tuesday that would “destroy American jobs” and urged members of his party to oppose it.

Even those who back Boehner’s efforts to reach a compromise said Obama is squandering the opportunity to strike one.

“He took Speaker Boehner’s offer and broke that olive branch in half, threw it back at him,” said Rep. Pete Sessions, the Texas Republican who leads the Rules Committee. Rank-and-file members of his party see Obama’s ability to “work effectively or even desire to work with us” as “nonexistent,” he said.

The governors who met with Obama on Tuesday pressed the president to avoid shifting costs from the federal government to states as the White House negotiates with Republican leaders in Congress.

“What people are concerned about is the uncertainty that the current state of the debate represents to businesses and individuals across the country,” said Gov. Jack Markell of Delaware, a Democrat, at a news conference after meeting with Obama at the White House. “The sooner this gets resolved in a way that’s not a three-month fix — but that’s a fix for some longer period of time — the better off that we’ll be.”

States are concerned that Congress could hurt their financial recoveries by eliminating billions in state aid and triggering a recession. That poses risks in the nation’s capitals, where tax collections have rebounded near their peaks before the brunt of the 18-month recession that began in December 2007.

Obama invited members of the executive committee of the National Governors Association to the White House for talks on the budget negotiations, the effect on states and potential compromises with Congress.

Governors at the meeting also included Democrats Beebe and Mark Dayton of Minnesota and Republicans Scott Walker of Wisconsin and Gary Herbert of Utah. Also meeting with the governors were Treasury Secretary Timothy Geithner, senior adviser Valerie Jarrett and director of the National Economic Council, Gene Sperling.

Obama put Vice President Joe Biden in charge of following up with the governors.

Information for this article was contributed by Richard Rubin, Hans Nichols, Mike Dorning, Kathleen Hunter, Derek Wallbank, Heidi Przybyla, Roxana Tiron, James Rowley, Roger Runningen and William Selway of Bloomberg News.

Front Section, Pages 1 on 12/05/2012