Obama Warns of Prolonged Talks as Republicans Rebuff Plan

President Barack Obama and House Speaker John Boehner stood their ground with opposing plans to avert the fiscal cliff and warned there was no quick path to a solution.

Obama has proposed a framework that would raise taxes immediately on top earners and set an Aug. 1 deadline for rewriting the tax code and deciding on spending cuts, according to administration officials.

It calls for $1.6 trillion in tax increases, $350 billion in cuts in health programs, $250 billion in cuts in other programs and $800 billion in assumed savings from the wind-down of the wars in Iraq and Afghanistan, according to the officials, who asked for anonymity.

“In Washington, nothing’s easy, so there’s going to be some prolonged negotiations,” Obama said today from the floor of a toy factory in Hatfield, Pennsylvania.

Boehner said less than 30 minutes later during a news conference at the Capitol in Washington, that the proposal, presented to congressional leaders by Treasury Secretary Timothy F. Geithner, did nothing to move talks along.

“There’s a stalemate, let’s not kid ourselves,” he said.

The deadlock is over tax rates for the top 2 percent of wage earners in country, extending a battle that has been waged for more than a year between Obama and Republicans in Congress. The issue has gained more urgency as the clock ticks down on more than $600 billion in tax increases and spending cuts scheduled to start taking effect in January.

Tax Debate

In a campaign-style appearance a facility of the Rodon Group that makes Tinkertoys and K’NEX building sets, Obama said quick action by lawmakers to extend Bush-era tax cuts for middle-income Americans -- while letting top rates rise -- would give time for tougher negotiations on cutting spending to rein in a budget deficit that has exceeded $1 trillion during each of the four years he’s been in office.

With the approach of Christmas, and the retail sales the season sparks, Obama said acting on rates would give consumers certainty even if the debate on spending isn’t settled. Consumer spending accounts for about 70 percent of the economy.

“Where the clock is really ticking, right now, is on middle-class taxes,” he said. Settling the tax issue “would then give us in Washington more time to work together on that long-range plan to bring down deficits in a balanced way.”

Deficit Reduction

The administration’s framework calls for a total of $4.4 trillion in deficit reduction over the next decade. About $2.4 trillion would come from spending cuts, including $1 trillion already passed into law in 2011. Another $600 billion would come from savings on interest, and the plan also calls for $200 billion in economic growth efforts such as spending on infrastructure.

Boehner refused to give on raising tax rates on high earners, saying that doing so would deal a “crippling blow” to small business and hurt economic growth.

“We’re willing to put revenues on the table, but revenues that come from closing loopholes, getting rid of special interest deductions and not raising rates,” Boehner said. “We think it is better for the economy clear and simple.”

The dueling appearances followed Geithner’s shuttling among congressional leaders yesterday with the administration’s plan.

Public Campaign

As part of the administration’s campaign for public support, Geithner also will appear on the five main Sunday news interview shows, on NBC, ABC, CBS, Fox and CNN. Next week, Obama will meet with a group of governors on the fiscal cliff and address the Business Roundtable, Josh Earnest, a White House spokesman, said.

Republicans complained that the offer was little more than a rehash of old budget proposals, setting the stage for more contentious negotiations over the next several weeks.

Republicans also are seeking an overhaul of entitlement programs in exchange for raising tax revenue through other methods, such as limiting deductions. They want a higher Medicare eligibility age and an alternative yardstick for calculating inflation that would reduce Social Security cost-of- living adjustments, according to a Republican aide who wasn’t authorized to speak publicly.

Economic Impact

The Congressional Budget Office has warned that if Congress doesn’t avert the fiscal cliff, the economy might slip into recession next year and boost the unemployment rate to 9.1 percent in the fourth quarter of 2013, compared with 7.9 percent now.

The Standard & Poor’s 500 Index (SPX) slipped 0.2 percent to 1,413.71 at 1:21 p.m. in New York amid skepticism that a budget deal will be reached. Yields on 10-year U.S. notes fell less than one basis point to 1.61 percent after falling two points earlier.

Democrats rebuffed complaints from Republicans about the plan they were presented with yesterday and criticism that Obama wasn’t giving enough details in his offer.

Geithner brought a “very specific offer” to Republicans, Maryland Representative Steny Hoyer, the second-ranking House Democrat, said.

“I don’t think it’s a take it or leave it offer,” he told reporters. If Republicans “don’t like it, which apparently they do not, they need to counter-offer.”

Political Influence

Obama and his allies argue the president’s re-election demonstrates public support for his position because he made it clear during the campaign.

House Democratic Leader Nancy Pelosi said Obama “made it very clear he was supporting tax cuts for the middle class” during his re-election campaign.

“The people spoke in the election,” said Jack Hansen, a Democrat and a borough councilman in Lansdale, near Hatfield, who was at Obama’s event at the factory.

K’NEX Industries Inc. Chief Executive Officer Michael Araten, a Democrat and Obama supporter, said raising taxes for middle-income families would have a bigger impact than raising taxes on top earners.

“If you remove $200 billion of discretionary spending from the American economy, that’s going to hurt businesses a lot more than the incremental 3 percent I might pay on my taxes,” he told reporters after Obama spoke.

Boehner, who will also appear on “Fox News Sunday,” and Senate Republican leader Mitch McConnell of Kentucky accused Obama of extending his political campaign rather than negotiating. Representative Pat Tiberi, an Ohio Republican, said he’s frustrated with Obama’s approach.

“The president won 50 states and 75 percent of the vote,” he said. “That’s what they’re acting like.”

Campaign Working

Still, Tiberi, a member of the tax-writing Ways and Means Committee, said Obama’s strategy may be working.

“We’re getting our socks cleaned by the president in the PR war,” he said.

Geithner’s offer is based on Obama’s fiscal 2013 budget and his 2011 proposal to the deficit-cutting supercommittee, which last year didn’t come up with a plan all sides could accept.

It would raise taxes for top earners by $1.6 trillion over the next decade with higher rates on income, capital gains, dividends and estates, along with limits on tax breaks. It would call for about $400 billion in cuts to entitlement programs, which Republicans have deemed insufficient.

The plan would either extend or replace a payroll tax cut that is set to expire at the end of the year, according to Republican aides. It would protect millions more people from having to pay the alternative minimum tax and defer by a year the federal spending cuts set to begin in January.

To contact the reporters on this story: Margaret Talev in Hatfield, Pennsylvania at mtalev@bloomberg.net; Roxana Tiron in Washington at rtiron@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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