President Barack Obama, fresh from his re-election, turned his attention Friday to the economy, offering to talk with Congress about how to avoid the prospect of automatic tax increases on the middle class.
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However, Obama refused to give way on allowing taxpayers earning over $250,000 a year to avoid increases, while Speaker of the House John Boehner, R-Ohio, insisted he would not permit tax increases on small business owners.
“As I said on Tuesday night, the American people voted for action, not politics as usual,” Obama said in a brief address at the White House Friday. “You elected us to focus on your jobs, not ours. And in that spirit, I’ve invited leaders of both parties to the White House next week, so we can start to build consensus around the challenges that we can only solve together. And I also intend to bring in business and labor and civic leaders from all across the country here to Washington to get their ideas and input as well.”
Obama said his economic plan involves rewarding small businesses and manufacturers that create jobs in the U.S., not overseas, and to give people the opportunity to get the education and training that businesses are looking for right now, as well as provide incentives for research and technology and clean energy. He also wants to put people back to work, including veterans, rebuilding roads, bridges, and other infrastructure, while reducing the budget deficit in a balanced, responsible way.
“Our work is made that much more urgent because at the end of this year, we face a series of deadlines that require us to make major decisions about how to pay our deficit down —decisions that will have a huge impact on the economy and the middle class, both now and in the future,” he said. “Last year, I worked with Democrats and Republicans to cut a trillion dollars’ worth of spending that we just couldn’t afford. I intend to work with both parties to do more, and that includes making reforms that will bring down the cost of health care so we can strengthen programs like Medicaid and Medicare for the long haul.”
Obama insisted, however, that reducing the deficit has to involve both spending cuts and tax revenue. “That means asking the wealthiest Americans to pay a little more in taxes,” he added. “That’s how we did it in the 1990s, when Bill Clinton was President. That’s how we can reduce the deficit while still making the investments we need to build a strong middle class and a strong economy. That’s the only way we can still afford to train our workers, or help our kids pay for college, or make sure that good jobs in clean energy or high-tech manufacturing don’t end up in countries like China.”
Obama said he has put forward a detailed plan that provides for reducing the budget deficit by $4 trillion over the next decade, while making critical investments. He emphasized that he is “not wedded to every detail” of his plan.
“I’m open to compromise,” he said. “I’m open to new ideas. I’m committed to solving our fiscal challenges. But I refuse to accept any approach that isn’t balanced. I am not going to ask students and seniors and middle-class families to pay down the entire deficit while people like me, making over $250,000, aren’t asked to pay a dime more in taxes. I'm not going to do that.”
Obama noted that this was a central question during the election. “It was debated over and over again,” he said. “And on Tuesday night, we found out that the majority of Americans agree with my approach—and that includes Democrats, independents, and a lot of Republicans across the country, as well as independent economists and budget experts. That’s how you reduce the deficit—with a balanced approach.”
He said his job now is to get a majority in Congress to reflect the will of the American people. “I believe we can get that majority,” he added. “I was encouraged to hear Speaker Boehner agree that tax revenue has to be part of this equation, so I look forward to hearing his ideas when I see him next week.”
Obama pointed out that if Congress fails to come to an agreement on an overall deficit reduction package by the end of the year, everybody’s taxes will automatically go up on January 1, including the 98 percent of Americans who make less than $250,000 a year. “That makes no sense,” he added. “It would be bad for the economy and would hit families that are already struggling to make ends meet.”
Obama urged Congress to decouple an extension of tax breaks for the middle class so it would not also depend on an extension of the tax cuts for those making over $250,000 a year.
“Now, fortunately, we shouldn’t need long negotiations or drama to solve that part of the problem,” he said. “While there may be disagreement in Congress over whether or not to raise taxes on folks making over $250,000 a year, nobody—not Republicans, not Democrats—want taxes to go up for folks making under $250,000 a year. So let’s not wait. Even as we’re negotiating a broader deficit reduction package, let’s extend the middle-class tax cuts right now.”
Obama stressed that one step would give millions of families—98 percent of Americans and 97 percent of small businesses—the certainty they need going into the New Year. “It would immediately take a huge chunk of the economic uncertainty off the table, and that will lead to new jobs and faster growth,” he added. “Business will know that consumers, they're not going to see a big tax increase. They'll know that most small businesses won't see a tax increase. And so a lot of the uncertainty that you're reading about, that will be removed.”
Obama noted that the Senate has already passed a bill to extend the tax cuts for the middle class, although he did not mention that the House has also passed a bill to extend the tax cuts for all income levels. “All we need is action from the House, and I’ve got the pen ready to sign the bill right away,” he said. “I'm ready to do it.”
Obama urged cooperation and noted that in the election, the American people indicated that they would not tolerate dysfunction in Washington. “They won’t tolerate politicians who view compromise as a dirty word,” he said. “Not when so many Americans are still out of work. Not when so many families and small business owners are still struggling to pay the bills. What the American people are looking for is cooperation. They're looking for consensus. They're looking for common sense. Most of all, they want action. I intend to deliver for them in my second term, and I expect to find willing partners in both parties to make that happen. So let’s get to work.”
In a separate press conference on Friday, Boehner noted that the Republican-dominated House has already passed legislation to prevent tax rates from rising and to avert the defense spending cuts that were part of the so-called “sequester.”
“The members of our majority understand how important it is to avert the fiscal cliff,” he said. “That’s why the House took action earlier this year to replace the ‘sequester’ with other types of cuts. And it’s also why over the summer we passed a bill to extend all the current tax rates for one year so that we had time to overhaul our Tax Code. And it is why I outlined a responsible path forward, where we can replace the spending cuts and extend the current rates, paving the way for entitlement reform as well as tax reform with lower tax rates.”
Boehner said he was open to discussing tax reform. “2013 should be the year we begin to solve our debt through tax reform and entitlement reform,” he said. “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. This will bring jobs home, result in a stronger, healthier economy. And a stronger, healthier economy means more Americans working and more revenues, which is what the President is seeking.”
Boehner suggested the talks would provide Obama with an opportunity to demonstrate leadership. “This framework can lead to common ground, and I hope the president will respond today in that same spirit,” he said. “As I said on Wednesday, this is an opportunity for the President to lead. This is his moment to engage the Congress and work towards a solution that can pass both chambers. Earlier this week, the President and I had a short conversation. It was cordial. I think we both understand that trying to find a way to avert the fiscal cliff is important for our country. And I’m hopeful that productive discussions can begin soon so that we can forge an agreement that can pass the Congress.”
Boehner also cited a newly released report from the Congressional Budget Office on the effects of going over the fiscal cliff, which highlights the contraction the U.S. economy would face in the wake of approximately $700 billion in expiring tax cuts and automatic spending reductions. According to the report, gross domestic product would drop 0.5 percent next year if the spending cuts and tax changes mandated by sequestration and the Budget Control Act were allowed to occur. The CBO also estimated that unemployment would increase to 9.1 percent from its current rate of 7.9 percent.
However, the report shows that if the fiscal cliff were eliminated without addressing current fiscal challenges, the economy would remain below its potential and unemployment would remain high. The CBO concluded that Congress should not eliminate the fiscal cliff without replacing it with a responsible, long-term deficit reduction plan.
For more information on the fiscal cliff and the expiring tax provisions, CCH is offering a new tax briefing on post-election tax policy.