Obama claims mandate on reducing U.S. deficit

By ANDREW TAYLOR

Associated Press

WASHINGTON — President Barack Obama, laying down his marker for grueling “fiscal cliff” negotiations, said Friday he won’t accept any approach to federal deficit reduction that doesn’t ask the wealthy to pay more in taxes.

“This was a central question during the election,” Obama said in his first postelection comments on the economy. “The majority of Americans agree with my approach.”

Following up, Obama’s spokesman said later that the president would veto any legislation extending tax cuts for families making $250,000 or more.

The president, speaking in the White House East Room, said he wasn’t wedded to every detail of the plans he outlined during the election, adding, “I’m open to compromise.” But he offered no indication that he was willing to back down.

Republicans stood their ground. At the Capitol, Republican House Speaker John Boehner said he remains unwilling to raise tax rates on upper-income earners.

But he left open the possibility of balancing spending cuts with new revenue that could be achieved by revising the tax code to lower rates but also eliminate some tax breaks.

Obama said he had invited congressional leaders of both parties to the White House next week for their first postelection negotiations. Their assignment: avert the “fiscal cliff” tax increases and automatic spending cuts due to hit in January. Both parties agree that those changes, the result of failed deficit-cut talks earlier this year, could send the economy back into recession.

He avoided any mention of actual tax rates in his remarks, saying only that the wealthy should pay more. That omission might seem to open a door for negotiating, but spokesman Jay Carney’s statement on the likelihood of a veto suggested otherwise.

Both sides agree that failure to address the automatic tax increases and spending cuts could cripple the economy. A Congressional Budget Office report on Thursday projected that the economy would fall back into recession if there is a protracted impasse in Washington.

Obama and Republicans have tangled over the tax cuts first approved by George W. Bush for years. The president gave in to Republican demands to extend the cuts across the board in 2010, but he ran for re-election on a pledge to allow the rates to increase on families making more than $250,000 a year.

Republicans say raising tax rates on the wealthiest Americans is a non-starter. Boehner said it would hurt small businesses while they are still struggling to recover from the recession.

“I’m proposing that we avert the fiscal cliff together in a manner that ensures that 2013 is finally the year that our government comes to grips with the major problems that are facing us,” Boehner said Friday. He said cuts to Medicare, Medicaid and food stamps, known as entitlement programs, have to be part of the equation.

Boehner also indicated that raising the debt limit, which the government will reach sometime in the spring, should be part of any negotiations. Pressed for details beyond that framework, he said he didn’t want to limit ideas to address the problem. He said the burden is on Obama.

“This is an opportunity for the president to lead,” Boehner said. He repeated a version of that phrase four times during the 11 minutes he spoke. “This is his moment to engage the Congress and work toward a solution that can pass both chambers.”

Some analysts believe that the “cliff” is more like a fiscal slope, that the economy could weather a short-term expiration of the Bush-era tax cuts and the government could manage a wave of automatic spending cuts for a few weeks. But at a minimum, failure to reach some resolution would mean delays in filing taxes and obtaining refunds and would rattle financial markets as the economy struggles to recover.

The congressional budget analysis said the automatic tax increases and spending cuts would cut the deficit by $503 billion through next September but the fiscal austerity would cause the economy to shrink by 0.5 percent next year and would cost millions of jobs.

The new study estimates that the nation’s gross domestic product would grow by 2.2 percent next year if all Bush-era tax rates were extended and would expand by almost 3 percent if Obama’s 2 percentage point payroll tax cut and current jobless benefits for the long-term unemployed were extended as well.

All sides say that they want a deal and that now that the election is over everyone can show more flexibility than in the heat of the campaign.

On Thursday, Sen. Chuck Schumer, D-N.Y., hinted Democrats might show some flexibility on demands to increase the top income tax rate from 35 percent to 39.6 percent for upper-income earners — provided the middle class doesn’t bear the burden by curbing tax breaks to pay for it.

“If you kept them at 35 it’s still much harder to do, but obviously there is push and pull and there are going to be compromises,” Schumer said. “The president’s view, my view and the overwhelming view that we ran on, and succeeded on, and the exit polls show that the American people agreed with us on is let the rate go to 39.6 for the highest-end people.”

The current assumption is that any agreement would be a multistep process that would begin this year with a down payment on the deficit and on action to stave off more than the tax increases and $109 billion in across-the-board cuts to the Pentagon budget and a variety of domestic programs next year.

The initial round is likely to set binding targets on revenue levels and spending cuts, but the details would probably be enacted next year.

While some of that heavy work would be left for next year, a raft of tough decisions would have to be made in the next six weeks. They could include the overall amount of deficit savings and achieving agreement on how much would come from revenue increases and how much would be cut from costly health care programs, the Pentagon and the day-to-day operating budgets of domestic Cabinet agencies.