Obama, Boehner begin year-end duel on taxes
By Tom Cohen, CNN
WASHINGTON (CNN) – Flush with re-election vigor, President Barack Obama on Friday will provide his first public comments on the upcoming negotiations with Congress on how to deal with pending tax hikes and spending cuts that create the so-called fiscal cliff facing the economy at the end of the year.
Obama and House Speaker John Boehner are positioned as the lead negotiators in a showdown between Democrats and Republicans over the issue identified by voters as a top priority: reducing the chronic federal deficits and debt considered a threat to economic prosperity and national security.
Boehner, R-Ohio, has signaled a willingness to deal but also maintained hardline GOP opposition to any tax increase. He will speak to reporters two hours before Obama delivers his statement on the economy Friday afternoon at the White House.
His hand was weakened by the election results Tuesday that returned Obama to the White House, broadened the Democratic majority in the Senate and slightly narrowed the Republican majority in the House.
Retiring GOP Rep. Steve LaTourette of Ohio told CNN that a poll commissioned by centrist Republicans showed that voters wanted Congress to fix the nation’s fiscal problems rather than cling to political orthodoxy.
“They didn’t send the same bunch back to town in this election because they love what they’re doing,” LaTourette said. “They sent him back because they don’t trust either side, but they do expect them to get this thing done.”
While the result was another split Congress like the current session that has become a symbol of legislative dysfunction, both sides have signaled a possible new openness to an agreement that was unreachable in the past two years.
In the final days of the campaign, Vice President Joe Biden referred to private talks with members of Congress on the pending fiscal impacts of expiring tax cuts and mandatory budget cuts. This week, Boehner called on Obama to work with him to complete a comprehensive deficit reduction agreement — the “grand bargain” that eluded them last year.
LaTourette said both Boehner and Obama were held back from a deal back then because of pressure from their respective bases — Republicans who signed a pledge against any new taxes stopped Boehner, while liberal defenders of entitlement programs halted Obama.
“The ‘no tax pledge’ people in the Republican Party yanked Boehner back and the ‘don’t you dare touch the middle class’ entitlement people in the president’s party pulled him back, and as a result those talks collapsed,” LaTourette said.
Boehner made clear this week that a comprehensive agreement won’t happen by the end of the year in the lame-duck session of Congress. He proposed that the two sides use that time to set up a framework for substantive negotiations when the new Congress comes in next year while taking short-term steps to avoid the fiscal cliff.
Sen. Dick Durbin of Illinois, a top Democrat in the chamber, said such a timetable could work.
“We have a chance in the lame duck to at least start the process, and I think there’s a chance to rally bipartisan support,” he said. “These are basic issues we can work out, and the president is in a position to do that.”
The fiscal cliff comprises two main elements. Tax cuts from the administration of President George W. Bush will expire on December 31, triggering a return to higher Clinton-era rates for everyone.
In addition, $1.2 trillion in mandatory across-the-board budget cuts — known in legislative parlance as the sequester — will take effect next year unless Congress finds a way to offset that amount in the federal budget.
Another looming issue will be the need to again increase the nation’s debt ceiling sometime in the spring, creating the potential for more political brinksmanship that contributed to last year’s first-ever downgrade of the U.S. credit rating.
Both sides agree the best outcome would be a broad deal addressing the overall need for deficit reduction, including reforms to the tax system and entitlement programs such as Social Security, Medicare and Medicaid.
However, they remain far apart on exactly how to forge such an agreement.
Obama campaigned on having wealthy Americans contribute more to deficit reduction efforts, and administration officials say the president will veto any package that extends the Bush tax cuts for income over $250,000.
“I’ve already signed a trillion dollars’ worth of spending cuts. I intend to do more, but if we’re serious about the deficit, we also have to ask the wealthiest Americans to go back to the rates that they paid when Bill Clinton was in office,” Obama said last week on the campaign trail.
In an e-mailed statement, Obama campaign policy director James Kvaal said the president wants “a balanced plan that cuts the deficit by $4 trillion with $2.50 worth of spending cuts for every dollar in revenue and reduces spending on Medicare, Medicaid and other entitlements.”
Boehner and Republicans oppose raising taxes on anyone, and instead back a broad reform of the tax system that would lower rates further for everyone while eliminating some deductions and loopholes.
While Boehner said this week that his side was open to increasing revenue from such reforms, he made clear that such increases should come from resulting economic growth instead of higher tax rates.
In essence, Boehner proposed the kind of tax reform championed by failed Republican presidential challenger Mitt Romney, whose plan was criticized by Obama and many economists for being unrealistic in assuming that the combination of closed loopholes and economic growth would equal the lost revenue of tax cuts.
Obama’s victory gives him new leverage in the budget battles after Republicans forced the president and Democrats into prolonged and sometimes bitter showdowns in the last two years, including threats of government shutdowns and default.
One top Democrat with close ties to leaders on Capitol Hill and the White House said that the imminent expiration of the Bush tax cuts means Obama “doesn’t have to do anything and everyone’s taxes go up,” which is a GOP nightmare.
Such an increase would affect personal income tax, the estate tax, dividends and capital gains taxes.
In addition, some officials are hinting the feared sequester cuts don’t have to be implemented right away in the new year, giving at least a few months for a deal to be worked out.
CNN’s Jessica Yellin and Allison Brennan contributed to this report.