On taxes, the White House has signaled it is prepared to let all of the George W. Bush-era income tax cuts expire at the end of the year if Republicans refuse to limit a tax-cut extension to income below $25,000 a year for married couples.
“We have to ensure that taxes do not go up on middle-class families,” Obama said today. “That is an agenda that Democrats and Republicans and independents, people all across the country, can share.”
Unlike in mid-2011, when talks between Obama and Boehner collapsed, outside market and political forces are bearing down on lawmakers.
Credit ratings agencies including Moody’s Investors Service have said an additional credit downgrade could occur if talks fail. The nonpartisan Congressional Budget Office has warned of a recession in 2013, and Federal Reserve Chairman Ben Bernanke has said he has few options in his tool box should the U.S. suffer an economic shock.
Following a mid-2011 agreement to lift the nation’s borrowing limit that contained $1.2 trillion in Republican- driven spending cuts, and an election where Democrats picked up seats in the House and Senate, the party says it’s well positioned to secure a debt-reduction package weighted mostly toward revenue.
As they try to find a solution both sides can accept, some moves that ease the math complicate the politics.
Republicans oppose higher rates while the limits on tax breaks they prefer generate opposition from interest groups that rely on them, including nonprofit organizations, the home- building industry and residents of high-tax states.
“To get serious revenue, you have to go after the stuff that’s big,” said Alan Viard, resident scholar at the American Enterprise Institute, which favors limited government. “By definition, the stuff that’s really big are the things that people are really using.”
Obama wants $1.6 trillion in higher taxes for top earners over the next decade, achieved through a combination of limits on breaks and higher tax rates on ordinary income, capital gains, dividends and estates.
The biggest question is how many votes of his Republican rank-and-file Boehner could lose to produce a revenue compromise in the House, where he oversees an “unstable majority” that’s rejected spending bills and last year’s debt ceiling increase, said Virginia Representative Gerry Connolly, a Democrat.