A Deep Divide

Posted: December 06, 2012

WASHINGTON - President Obama on Tuesday rejected a GOP proposal to collect new taxes from high earners by limiting their deductions and tax breaks, insisting that any deal to avoid the year-end fiscal cliff must include an agreement to raise the top income tax rates.

"We're going to have to see the rates on the top 2 percent go up," Obama told Bloomberg Television in his first television interview since the Nov. 6 election. "And we're not going to be able to get a deal without it."

Senior Republican aides said the White House offered no additional response to the plan put forth Monday.

Obama instead appeared to toughen his stance on tax rates, the central dispute between the two parties. The top tax rate is set to rise automatically from 35 percent to 39.6 percent when the George W. Bush-era tax cuts expire in January.

In a news conference last month, Obama suggested that he might let the top rate rise to a level somewhat lower than 39.6 percent to satisfy Republicans who argue that higher rates would hurt small businesses. On Tuesday, Obama seemed to block even that path to compromise, sketching out a two-step process that assumes full expiration of the Bush tax cuts in January followed by legislation that could lower the rate sometime next year.

"Let's let tax rates on the upper-income folks go up," Obama said. ". . . And then let's set up a process with a time certain, at the end of 2013 or the fall of 2013, where we work on tax reform, we look at what loopholes and deductions both Democrats and Republicans are willing to close. And it's possible that we may be able to lower rates . . . at that point."

Senior Republicans said they were astonished by the White House reaction to their proposal for $800 billion in new revenue, which contained few specifics but represented their first explicit offer to raise revenue. Democrats dismissed it as too little, too late.

Some conservatives, meanwhile, also balked at the proposal drafted by House Speaker John A. Boehner (R., Ohio) and other senior House leaders. Sen. Jim DeMint (R., S.C.) said, "Boehner's . . . tax hike will destroy American jobs and allow politicians in Washington to spend even more" without reducing the deficit.

But those voices were relatively few. Many other conservatives, including a number of Republican freshmen who have repeatedly frustrated Boehner's efforts to negotiate with Democrats, said they were withholding judgment on the plan.

"I haven't read the speaker's proposal. You wouldn't want me to have an opinion before I've read it, would you?" said Rep. Trey Gowdy (R., S.C.), one of the House's most reliably conservative voices.

The wait-and-see attitude comes as Boehner sent a message to his rank-and-file this week that stepping out of line will have consequences, yanking plum committee assignments from four conservative lawmakers who have repeatedly voted against House leaders.

Reps. Tim Huelskamp of Kansas and Justin Amash of Michigan will lose their seats on the House Budget Committee chaired by Rep. Paul Ryan next year. And Reps. Walter Jones of North Carolina and David Schweikert of Arizona are losing seats on the Financial Services Committee.

Schweikert said it was made clear to him "I should vote for the team more."

Republicans' wait-and-see attitude also reflects an understanding that Democrats have pushed Republicans into an uncomfortable corner on the tax issue. Taxes will rise automatically on nearly 90 percent of taxpayers next year unless Congress acts. Obama is demanding legislation that would protect 98 percent of taxpayers while allowing rates to rise on the top 2 percent. If Republicans refuse, polls suggest they will take the blame for sending the nation over the fiscal cliff and raising nearly everyone's taxes.

"I've said this for weeks now - the president does not fear the fiscal cliff," said Rep. Steve King (R., Iowa). "That means he can push and push."

Also Tuesday, a bipartisan group of governors, including Delaware Democrat Jack Markell, traveled to Washington to urge the president and congressional leaders to act quickly to avoid the fiscal cliff, warning that the series of budget cuts and tax increases set to take effect in January would rock their states.

Already, governors and mayors nationwide are saying that the uncertainty spawned by the deadlocked congressional negotiations is crimping economic activity and making budget planning an exercise in creativity.

"It is a very difficult time for all of us, because we are trying to figure out what to do going forward," said Gov. Gary Herbert (R., Utah). "It is almost like we have to prepare one budget if we solve it and one budget if they don't solve it."

In a late-morning White House meeting, members of the National Governors Association's executive committee delivered that message to Obama and Vice President Biden. They made a similar point in a meeting with congressional leaders on Capitol Hill later Tuesday.


This article contains information from the Associated Press.

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