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'Fiscal cliff' puts focus on tax rates

McClatchy Newspapers

November 09. 2012 7:19PM

President Barack Obama on Friday invited congressional leaders to the White House to start negotiating a deal to prevent sharp tax hikes and spending cuts from going into effect at the end of the year and said he was "open to compromise." (REUTERS/Kevin Lamarque)
WASHINGTON - President Barack Obama and House Speaker John Boehner said Friday that they want to work together to avert spending cuts and tax increases that could throw the economy back into a recession - but both also come to the negotiations with the same sharp differences they had before this week's elections.

The key divide involves income tax rates. Obama wants to continue the Bush-era rates, which are scheduled to expire at the end of the year, for families that make less than $250,000 annually. Republicans say the current rates should continue for everyone, including the wealthy.

The President spoke at the White House for the first time since his win Tuesday over Republican Mitt Romney, and he maintained that most Americans support his "balanced approach" of cutting spending while raising taxes on the rich.

"I want to be clear: I'm not wedded to every detail of my plan," Obama said. "I'm open to compromise. I'm open to new ideas. I'm committed to solving our fiscal challenges. But I refuse to accept any approach that isn't balanced."

Boehner, an Ohio Republican, who spoke on Capitol Hill earlier in the day, said he was open to compromise on virtually everything - except higher taxes.

"Everyone wants to get our economy moving again," he said. "Everyone wants to get more Americans back to work again. Raising tax rates will slow down our ability to create the jobs everyone says they want."

Senate Republican leader Mitch McConnell of Kentucky took a harder line.

"There is no consensus on raising tax rates, which would undermine the jobs and growth we all believe are important to our economy," he said. "While I appreciate and share the President's desire to put the election behind us, the fact is we still have yet to hear an actual plan from the President for addressing the great economic challenges we face."

Democrats quickly fired back. "The President's message today was as clear as the outcome of the election," said House Minority Whip Steny Hoyer, D-Md.

Obama won reelection with 50.5 percent of the popular vote, and the Democrats increased their majority in the Senate. The party expects to control 55 seats next year, up from the current 53. But Republicans will retain control of the House of Representatives with a strong majority.

Obama and congressional leaders of both parties will meet next Friday at the White House, the day before the President leaves for a three-nation Asian visit, to begin discussing ways to avoid the so-called fiscal cliff. He also plans to speak with business, labor and civic leaders.

A coalition of New Hampshire leaders led by Nashau Mayor Donnalee Lozeau, a Republican, and state Sen. Lou D'Allesandro, D-Manchester, will also urge Congress to act to avoid the fiscal cliff.

"Everything has to be on the table. We have to all be willing to make the hard choices," Lozeau said in a statement. "We don't have the luxury of cherry picking the things no one wants to touch."

"This needs a bipartisan effort, and it requires people coming together. Everyone must play a role. Sacrifices must be made," D'Allesandro said in a statement.

Obama and Boehner said they were ready to talk. They negotiated last year and came close to a "grand bargain" on spending cuts and revenues. But the same problem that dogged their negotiations then still appears to be in place: rank-and-file party members who are reluctant to move away from their positions on taxes.

The President and the speaker had an initial conversation earlier in the week after the election, which Boehner described as cordial.

"Fiscal cliff" is the term that's been used to describe a series of spending cuts that are slated to take effect as the result of a bipartisan deal struck last year to raise the nation's debt ceiling. The first $109 billion, including $55 billion in defense reductions that the Obama administration has said are unacceptable, would kick in Jan. 2, before the new Congress is sworn into office.

The nonpartisan Congressional Budget Office has said that the cuts, along with tax increases, could raise the unemployment rate to about 9 percent. It's now 7.9 percent.

Both parties oppose the spending reductions, but they've disagreed for months on what to do about them. They postponed their discussions until after the election. Congress will return to Washington on Tuesday.

With voters returning Obama to the White House and Republicans to a majority in the House, each man says the American people prefer his solution.

"On Tuesday night, we found out that the majority of Americans agree with my approach - and that includes Democrats, independents and a lot of Republicans across the country, as well as independent economists and budget experts," Obama said. "So our job now is to get a majority in Congress to reflect the will of the American people."

One politically worrisome element of the fiscal cliff is that nearly every tax cut enacted in the past decade is set to expire at the end of this year. The $500 billion tax increase that would be paid by Americans at all income levels would have the average household paying $3,500 more, according to nonpartisan estimates.

Republicans want to extend all the tax cuts - enacted under President George W. Bush and extended by Obama - through at least next year.

Obama urged the House to approve a bill that the Senate already has passed that would extend all the tax reductions on individual incomes below $200,000 and household incomes below $250,000. He wants to revive the top income-tax rate of 39.6 percent for the wealthiest earners.

On Capitol Hill, Boehner outlined in general terms how additional revenue could be raised without a tax increase: overhauling the tax code, closing loopholes and spurring economic growth. But he wouldn't get specific.

"It's clear that there are a lot of special-interest loopholes in the tax code, both corporate and personal," Boehner said. "It's also clear there are all kinds of deductions, some of which make sense, some don't."

Romney had proposed a 20 percent across-the-board reduction in income tax rates. Boehner has not, and Congress' Joint Committee on Taxation found last month that even eliminating the most popular deductions would support only a 4 percent rate cut.

Boehner also wouldn't specify what goal he had for the federal deficit, which was $1.1 trillion in fiscal 2012, the 12-month period that ended Sept. 30. The number was down about $207 billion from the previous year, but it was still the fourth straight year that the deficit topped $1 trillion.

"Clearly the deficit is a drag on our economy," the speaker said, but he added, "I don't want to box myself in."

Nor would he get precise about what changes he'd want in entitlements such as Medicare or Social Security.

"This has to be dealt with," he said. "So everything - everything on the revenue side and the spending side - has to be looked at."

Obama, joined by Vice President Joe Biden, appeared in the East Room of the White House in front of nearly 200 supporters Friday afternoon. He didn't take questions.

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