At a campaign-style event at the White House today, President Barack Obama invited congressional leaders to the White House next week for talks on how to avoid spending cuts and at least some of the tax increases scheduled to occur in January. But he insisted that tax increases on the wealthiest Americans must be part of any deal.
In a statement at the White House, Obama indicated he will meet with Senate Majority Leader Harry Reid and House Speaker John Boehner next week “so we can start to build consensus around the challenges that we can only solve together.”
The president was referring to $64 billion in automatic spending cuts that will take effect in January if a deal cannot be reached. Those cuts are mandated by the Budget Control Act that Obama signed into law last year.
In his first White House appearance since defeating Republican Mitt Romney in Tuesday’s election, Obama said he was “open to new ideas” to avoid hat is known as the “fiscal cliff.” But he also dug in his heels by insisting that additional revenue be part of the solution.
“We can’t just cut our way to prosperity,” he said, adding that he would insist that “the wealthiest Americans to pay a little more in taxes” – a line that drew applause from the group of supporters standing behind him on stage. Obama defines “the wealthiest Americans” as single taxpayers earning more than $200,000 a year and couples with annual earnings in excess of $250,000.
And he claimed an election mandate, saying, “On Tuesday night we found out that the majority of Americans agree with my approach.”
Obama also repeated many of the themes of his re-election campaign speeches in Friday’s remarks – such as his view that more federal infrastructure spending is needed.
Obama did not take any questions.
Budget analysts call the combination of automatic spending cuts and tax increases set to occur at year end the fiscal cliff.
As part of an agreement to avoid the fiscal cliff, Obama and congressional leaders must also agree how much taxes ought to go up and which taxpayers will be hit by tax hikes. According to the Congressional Budget Office taxes will increase by more than $400 billion in 2013 under current law.
Adding to the pressure to design a deal that would avoid the fiscal cliff, the CBO on Thursday repeated its previous warnings that the spending cuts, combined with scheduled tax increases, would probably cause a recession next year.
Specifically the CBO said in its Thursday report that the tax increases and spending cuts would cause the unemployment rate to rise to 9.1 percent by the fourth quarter of 2013, compared to a jobless rate of 7.9 percent in October.
In addition, starting on Jan. 1, the Affordable Care Act imposes a $20 billion tax increase on people with incomes above $200,000, or $250,000 for joint filers. Adding to the tax increase, a temporary reduction in the Social Security payroll tax is set to expire at year end.The tax increases would raise the average tax burden by almost $3,500 per taxpayer in 2013, according to According to the Tax Policy Center. This would happen because the current income tax rates and some tax breaks are scheduled to expire or shrink on Dec. 31. Among them, the popular middle-class tax break, a $1,000-per-child tax credit for each child age 17 and younger, would be cut in half.
The president has argued for raising taxes on Americans with incomes over $200,000 and over $250,000 for married couples who file jointly.
But the exact mix of tax increases and who must pay them will be the subject of intense negotiations between the president and congressional leaders over the next few weeks.
Before February Obama and congressional leaders must also work out a deal to raise the federal government’s borrowing limit.
“The members of our majority understand how important it is to avert the fiscal cliff,” he said. He sketched out his opening bargaining position: Extend current tax rates for one year, allowing Congress time to entirely redesign the tax code, eliminating some tax deductions and preferences – and pass “entitlement reform.”In a press briefing Friday morning, Boehner said he is willing to work with Obama and congressional Democrats, but remains opposed to raising the tax rates for any Americans.
He made the case that “by lowering rates and cleaning up the tax code we know that we’re going to get more economic growth. It’ll bring jobs back to America – it’ll bring more revenue.”
The revenue question is crucial: Because the U.S. economy remains anemic, federal revenue has still not reached its pre-recession peak. While revenue increased for third consecutive year in fiscal 2012, it is still 5 percent below the 2007 peak.
Boehner warned about the spending pressure from growing entitlement programs: “We’re spending a trillion dollars more than what we take in. You can’t continue to do that. This is year two of a 25-year demographic bubble. …. Ten thousand Baby Boomers like me retiring every day.”
He said “everything on the revenue side and on the spending side has to be looked at.”
Obama and the Democrats go into the bargaining over fiscal policy with voters having given them a stronger bargaining position.
In Tuesday’s balloting, Democrats scored a net gain of at least six seats in the House, which was better than most analysts had predicted, and they exceeded expectations by gaining two seats in the Senate, dashing GOP hopes for a takeover of the upper chamber.
But Boehner said Tuesday that “The American people re-elected a Republican majority (in the House) and I’m proud of the fact that our team in a very difficult year was able to maintain our majority.”
But showing that the election outcome had altered his strategy, Boehner signaled a retreat Thursday from Republican calls for total repeal of the Affordable Care Act.
“I think the election changes that,” Boehner said in an interview with ABC News. “It’s pretty clear that the president was re-elected, Obamacare is the law of the land.”
But he added, “I think there are parts of the healthcare law that are going to be very difficult to implement. And very expensive. And as the time when we’re trying to find a way to create a path toward a balanced budget everything has to be on the table.” The speaker may try to make rescinding parts of the law an ingredient of any deal he tries to strike with Obama and Reid.
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