Nov. 4 (Bloomberg) -- The Obama administration is “open” to negotiations on temporarily extending tax cuts for upper-income individuals to win extensions for middle-income families, White House press secretary Robert Gibbs said.
While President Barack Obama is “open to listening” to Republican ideas on a one- or two-year extension of the existing top rates, he still opposes making them permanent, Gibbs said.
Obama “would not accept permanently extending the upper-income tax cuts,” Gibbs said at a briefing today. The administration’s “first priority” is extending the current rates for middle-income taxpayers, Gibbs said.
Obama wants “a compromise that moves this issue forward,” Gibbs said, and the administration will work toward “coming up with a plan that works for both sides.”
The remarks by Gibbs reinforce statements made by Obama yesterday following midterm elections in which Republicans gained control of the House and narrowed the Democratic majority in the Senate. Obama earlier today announced he has invited the top eight Republican and Democratic congressional leaders to a White House meeting on Nov. 18, after he returns from an overseas trip, to talk about the legislative agenda.
During the campaign, Obama repeatedly criticized Republican insistence on extending all Bush-era income tax cuts. He said the U.S. can’t afford to lose the $700 billion in revenue that would be brought in by letting rates rise for the top 3 percent of taxpayers, as the government faces a deficit of more than $1 trillion.
Extending the tax cuts on the first $250,000 of household income itself would add more than $3 trillion to the debt over the next decade.
The lawmakers elected Nov. 2, for the most part, take office in January after Congress returns for a lame-duck session in mid-November. Reaching an accord on taxes is a crucial item on the lame-duck agenda because the Bush-era tax cuts of 2001 and 2003 expire Dec. 31. If no action is taken, rates will rise for all U.S. taxpayers.
“When this year ends, tax rates are going to go up for the middle class,” Gibbs said. “This is an issue that must and has to be dealt with” this year and is likely to take a “big chunk” of time, he said.
Obama has opposed retaining tax breaks for individuals earning more than $200,000 a year or married couples making more than $250,000. Most Republicans want tax cuts extended for everyone.
“We continue to believe that extending all of the current tax rates for all Americans is the right policy for our economy at this time,” John Boehner of Ohio, the House Republican leader who is in line to become speaker in the next Congress, said yesterday.
Kentucky Senator Mitch McConnell, the Republican leader, said today that his party “will work hard to ensure Democrats don’t raise taxes on anybody, especially in the middle of a recession.”
John Feehery, a former adviser to then-House Speaker Dennis Hastert, the last Republican to hold the post, predicted Obama will cut a deal with lawmakers to extend all of the tax cuts temporarily.
“I don’t think Democrats want to leave town with a really big tax increase -- that will be really bad for Obama,” said Feehery, now head of the communications practice at the lobbying firm Quinn Gillespie & Associates in Washington. “The question isn’t going to be extending the tax cuts, it’s going to be for how long.”
If Congress takes no action, individual income tax rates will increase to 15, 28, 31, 36, and 39.6 percent from 10, 15, 25, 33, and 36 percent now. Reinstated limits on certain deductions and exemptions would push rates even higher for taxpayers in the top two brackets.
Many married couples would pay more in income tax than if they were single. The child tax credit would be reduced to $500. Rates on capital gains would revert to 20 percent, and dividends would again be taxed at ordinary income rates.
The estate tax, repealed for this year only, would affect estates exceeding $1 million and would have a top rate of 55 percent.
Lawmakers also must decide whether to renew a “patch” for the alternative minimum tax. Without it, millions of middle-income people will face a tax increase because the law wasn’t indexed for inflation.
Obama also has urged Congress to renew dozens of tax breaks benefiting businesses that expired Dec. 31, 2009. They include credits to conduct research, subsidies for renovating restaurants, and lower burdens on overseas profits earned by U.S.-based lenders such as General Electric Co. and JPMorgan Chase & Co.
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