Obama, Boehner Open to Compromise With Firm Stance

Obama Urges Tax Increases on Top Earners in Fiscal Talks
“The American people voted for action,” President Barack Obama said at the White House. Photographer: Andrew Harrer/Bloomberg

President Barack Obama and House Speaker John Boehner began public negotiations over how to avert the so-called fiscal cliff, expressing a willingness to compromise while reiterating their previous positions.

Obama, claiming a mandate from voters after his Nov. 6 re-election, called yesterday for an immediate tax-cut extension for people earning less than $250,000 and insisted that top earners pay more. Boehner cited public support for the re-elected House Republican majority and said tax rates must not go up.

While both said they were willing to compromise and act quickly, Obama and Boehner offered no public concessions. Their differences may take weeks to reconcile as they test each other’s readiness to bend, assess who will be blamed if they fail and work with party members who won’t want to give in.

Obama and Boehner will meet at the White House Nov. 16, along with House Democratic Leader Nancy Pelosi, Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell.

“It’s going to be the real negotiating once they start talking in person,” said Brendan Daly, a former Pelosi aide. “Clearly, they heard the message of the voters that we need to work together and solve this.”

Spending Cuts

If Congress doesn’t act by the end of the year, $607 billion in automatic spending cuts and tax increases are scheduled to take effect starting in January. They stem from previous decisions by Congress, including from the deal last year to raise the federal debt ceiling and the 2010 extension of tax cuts.

Concern that the global recovery will be slowed by a political deadlock over the fiscal changes, and about Greece’s ability to meet debt payments, contributed to declines in stocks earlier this week. U.S. stocks rose yesterday as better-than-forecast data on consumer sentiment overshadowed concern about the fiscal cliff.

The Standard & Poor’s 500 Index advanced 0.2 percent to close at 1,379.85 in New York; it fell 2.4 percent this week. The 10-year yield declined one basis point, or 0.01 percentage point to 1.61 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices.

In separate remarks yesterday, Obama and Boehner left open the possibility of agreement on preserving current tax rates while limiting tax breaks for top earners to raise revenue. Such an approach, which neither has explicitly proposed, would let Obama claim the higher tax payments he seeks from the wealthy and allow Boehner to avoid the higher rates he calls unacceptable.

‘Balanced’ Approach

Obama repeated the outline he laid out during his re-election campaign for a “balanced” approach to cutting the deficit that would include higher taxes on the wealthiest and some spending cuts.

The election showed “a majority of Americans agree with my approach,” Obama said. He called for immediate action by lawmakers to prevent rates from rising for middle-income taxpayers. “We shouldn’t need long negotiations or drama.”

At a news conference, Boehner called for a “simpler, cleaner, fairer tax code,” staking out the Republican position.

Boehner outlined the Republican approach to the fiscal cliff: avoid tax rate increases and spending cuts while beginning a process to overhaul entitlement spending and the tax code.

“This is an opportunity for the president to lead,” said Boehner, an Ohio Republican.

Bush Tax Cuts

The president wants to let George W. Bush-era tax cuts lapse on income of individuals above $200,000 and of married couples above $250,000. That would push the top tax rate to 39.6 percent from 35 percent.

The Senate, controlled by Democrats, and the House, controlled by Republicans, have each passed one-year extensions of their own proposals. The policies preferred by Democrats would lead to about $58 billion in higher taxes on top earners in 2013.

In recent days, Boehner has emphasized opposition to higher tax rates, rather than talking about higher taxes or higher revenue. He has endorsed the idea of increasing government revenue through an overhaul of the tax code without saying explicitly whether he would support a tax increase or the elimination of tax breaks without a corresponding rate cut.

Republican congressional aides told Bloomberg News Oct. 19 that they were designing options for trading rate preservation for tax break limits if the politics allow.

New Revenue

The idea has promise if Republicans are willing to consider new revenue that doesn’t come from economic growth, said Michael Linden, director of tax and budget policy at the Center for American Progress, a Washington group aligned with Democrats.

“They’re going to be able to start with some of those things that raise money without raising rates, and that only gets them so far,” Linden said.

Obama’s plan to cap tax breaks, which has gotten no traction in Congress, would raise about $584 billion over a decade, compared with the more than $900 billion that would be generated from higher rates on income, capital gains, dividends and estates.

Some Democrats may insist on higher tax rates. In an interview Nov. 8, Representative Sander Levin, the top Democrat on the House Ways and Means Committee, said talk of limits on tax breaks was little more than “glittering generalities” that doesn’t reflect that the biggest breaks, including the mortgage interest deduction, are tax policies and not loopholes.

Top Rate

“The top rate needs to go up and then you sit down and talk about how we reform the tax code,” said Levin, of Michigan.

Republicans have said that any additional tax revenue should come through a restructured tax code and from so-called dynamic scoring that relies on revenue from macroeconomic changes generated by the tax overhaul itself.

“We’re open to higher tax revenue from economic growth,” Representative Kevin Brady of Texas said in a Nov. 7 interview. “And key to that obviously is fundamental tax reform that lowers rates.”

Pressed by reporters yesterday, Boehner reiterated his previous statements and said he wanted to preserve flexibility for negotiations with Obama on a deal to avert the fiscal cliff and reduce the federal budget deficit.

Limit Options

“I don’t want to limit the options that would be available to me or limit the options that would be available to the White House,” the speaker said. “There are a lot of ways to get there.”

McConnell, the Senate Republican leader, drew attention to Obama’s lack of new policy on spending.

“We have yet to hear from Democrats on spending and entitlement reform,” he said in a statement after Obama spoke. “Every one of us wants to help the American people by helping the economy grow, and Republicans are eager to hear the president’s proposals on this and many other pressing issues going forward. The president has a duty to lead. We implore him again to do so.”

The blueprint for a deal to avoid a fiscal nightmare early next year may be found in the failed debt negotiations between Obama and Boehner in mid-2011.

The contours of that plan included revenue increases, spending cuts and changes to lower the long-term costs of entitlement programs. Before the talks collapsed, Boehner was willing to accept $800 billion in revenue increases and Obama was ready to settle for $1.2 trillion.

Part of their negotiations on a $4 trillion deficit-cutting plan included a gradual increase in the Medicare eligibility age to 67 and an alternative yardstick for calculating inflation that would reduce annual Social Security cost-of-living adjustments and raise taxes by slowing the annual adjustments in tax bracket thresholds.

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