Obama: Hit a deal or see economy sink

2 top Democratic senators soften on entitlement cuts

President Barack Obama, visiting Thursday with high school English teacher Tiffany Santana at her family’s home in Falls Church, Va., said “I think the American people are counting on” Washington to solve the national budget problem soon.
President Barack Obama, visiting Thursday with high school English teacher Tiffany Santana at her family’s home in Falls Church, Va., said “I think the American people are counting on” Washington to solve the national budget problem soon.

— President Barack Obama on Thursday again warned lawmakers that the U.S. economy will suffer unless there’s an agreement on a way to prevent more than $600 billion in automatic spending cuts and tax increases from taking effect.

If businesses “don’t have confidence that we’re going to get this done, then they’re going to start pulling back” on expansion and hiring, Obama said during a visit to a family in a northern Virginia suburb of Washington.

Meanwhile, two Senate Democratic leaders signaled they may have to accept cuts to U.S. entitlement programs to secure a deficit-reduction deal after some Republicans expressed willingness to discuss higher tax rates for top earners.

The president Thursday was at the home of Tiffany Santana, a high school English teacher, and Richard Santana, who works at a local auto dealership, to illustrate the hardships for families if Congress doesn’t act to stop the George W. Bush-era tax cuts for middle-income workers from expiring at the end of the year.

Obama reiterated his stance that the rate for top earners should be allowed to rise as one element of a deficit-reduction plan.

“This is a solvable problem,” Obama said. It’s “the right thing to do for our economy.”

The Congressional Budget Office has forecast that the U.S. would tip into recession if the slashed spending and the higher taxes for all earners goes into effect in what has become known as the “fiscal cliff.”

“We’re in the midst of the Christmas season,” Obama said, sitting at a table in the Santana family’s Falls Church home.

“I think the American people are counting on this getting solved. The closer it gets to the brink, the more stress there is going to be.”

Obama has offered $4.4 trillion in deficit reduction over a decade and has vowed he won’t sign any bill that doesn’t raise taxes on top earners.

“Just to be clear, I’m not going to sign any package that somehow prevents the top rate from going up for the folks in the top 2 percent,” Obama said Thursday. “But I do remain optimistic that we can get something done that is good for families like this one and is good for the American economy.”

Republicans, led by House Speaker John Boehner, have countered with a $2.2 trillion package of spending reductions and revenue increases by limiting deductions and eliminating provisions in the tax code. Republicans generally want tax cuts extended.

Boehner and Obama spoke Wednesday, aides to both said without describing their talks. The House is in recess until Tuesday.

Obama has urged Americans to use the social network Twitter to stress the need to preserve tax cuts for the middle class, a benefit of about $2,200 a year. More than 260,000 people have spoken, using the hashtag My2K, according to the White House.

The president’s quick trip Thursday — just a 15-minute drive from the White House — was part of an effort to rally public support for his tax proposals.

The family whose home he visited is one of many that shared their stories online, at the White House’s urging, of how they would be hurt if their taxes went up at the end of the year. The president will also travel to Detroit on Monday.

Beyond his insistence that taxes increase on the top earners, Obama has also warned Republicans not to inject the threat of a government default into negotiations over the “fiscal cliff” as a way of extracting concessions on spending cuts.

The White House reaffirmed Thursday that it did not believe that the president had the authority through the 14th Amendment to raise the debt ceiling by executive order.

Democrats have previously suggested Obama could take that step.

Meanwhile, Dick Durbin of Illinois, the second-ranking Senate Democrat, said he is open to alternatives including expanded means-testing — charging higher-income senior citizens more — for Medicare.

Republicans are seeking limits to spending on entitlement programs. Durbin and New York’s Sen. Charles Schumer, the chamber’s thirdranking Democrat, didn’t rule them out while speaking with reporters Thursday in Washington.

Republicans need a concession on entitlement programs, Durbin said, in exchange for any agreement on higher tax rates.

“They want something to put up on the wall and say, ‘OK, we gave on taxes, they gave on’” entitlements, Durbin said. “I hope we don’t go that route, and we may end up facing it as the only way out of this.”

“Means-testing to me is the easiest approach,” Durbin said.

A few dozen Republicans have signed a bipartisan letter seeking to consider “all options” on taxes and entitlement programs, signaling they are ready to bargain on Obama’s call for a tax-rate increase.

Boehner, in his $2.2 trillion debt plan he offered this week, proposed using a new inflation yardstick that would reduce cost-of-living increases in Social Security, as well as raising the Medicare eligibility age.

Other Republicans have additionally advocate d means-testing.

Boehner has insisted that Republicans won’t agree to higher tax rates for anyone.

Raising the Medicare eligibility age and the different Social Security yardstick were on the table during unsuccessful budget talks between Obama and Boehner in 2011.

A Republican leader of the petition to consider all revenue options, Rep. Mike Simpson of Idaho, said he could accept higher tax rates for married couples earning more than $500,000 a year in exchange for an overhaul of spending in entitlement programs.

Separately, some House Republicans have endorsed Oklahoma Republican Tom Cole’s call to extend the 2001 and 2003 tax cuts for middleclass earners while allowing the cuts for top earners to expire, as Obama has asked Congress to do by the end of the year.

Simpson said new entitlement limits could include changing the way senior citizens’ Social Security cost-ofliving increases are calculated and raising the Medicare eligibility age.

Schumer, when asked about those alternatives, said, “Let them give it to us officially as an idea,” without ruling them out.

In the Senate on Thursday, Majority Leader Harry Reid, a Nevada Democrat, and Minority Leader Mitch McConnell, a Kentucky Republican, sparred over the president’s proposal to give himself authority to raise the federal debt ceiling without approval by Congress.

McConnell sought a vote on the proposal, though he quickly retreated by threatening a filibuster after Democrats determined they had the 51 votes necessary to pass the bill.

Regarding entitlement programs, Durbin said it would be “difficult” to change the calculation of Social Security cost-of-living increases, and raising the Medicare eligibility age could hurt poor senior citizens who retire early with health problems.

Higher-income senior citizens already pay more for Medicare benefits.

“The question is what other means tests should apply,” Durbin said.

“I think that is reasonable and certainly consistent with the Democratic message that those who are better off in our country should be willing to pay a little more,” said Durbin.

Republicans have “got to come through with specifics on that,” he said.

Durbin was also responsive to Simpson’s suggestion to raise the annual income threshold Obama is advocating for a tax increase. The president wants to let tax rates increase for individuals’ income above $200,000 a year and married couples’ income above $250,000.

“If you’ve been around here long enough, you know there’s going to be some give on both sides,” Durbin said. “Some of the other elements, $250,000, $375,000, $500,000, you know” he said.

“As the president said, and I’ll just leave it in his words, ‘I’m open to good ideas,’” Durbin said.

Meanwhile, Steven Miller, the Internal Revenue Service’s acting commissioner, said failure by Congress to act on the alternative minimum tax by year’s end will lead to “significant” delays in tax filing and a strain on taxpayers.

The alternative minimum tax, or AMT, is part of the fiscal negotiations in Congress. Leaving it untouched would affect taxpayers early in 2013, because its reach would be expanded for returns filed for tax year 2012.

Without action by Congress, the parallel tax system would affect 32.4 million households for tax year 2012, up from 4 million in 2010, according to the Congressional Research Service. It would increase tax collections by $92 billion, shrinking or erasing many taxpayers’ expected refunds.

Congress created the forerunner to the alternative minimum tax in 1969 in response to news that 155 high-income taxpayers owed no income taxes.

Taxpayers must calculate their liability under the alternative minimum tax and the regular tax and pay whichever is greater. The alternative minimum tax has an exemption that isn’t indexed for inflation permanently, leading Congress to enact so-called patches that prevent the full reach of the tax from taking effect.

Information for this article was contributed by Roger Runningen, Heidi Przybyla and Richard Rubin of Bloomberg News and by David Espo and Ken Thomas of The Associated Press.

Front Section, Pages 1 on 12/07/2012

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