Cracks among Republicans on higher US tax rates

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Associated Press

Posted on December 10, 2012 at 5:01 PM

Updated Monday, Dec 10 at 5:01 PM

WASHINGTON (AP) — President Barack Obama used yet another campaign-style trip Monday, speaking to workers at a diesel engine plant in Michigan, to drum up grass-roots support for his promise to raise taxes on wealthy Americans as part of his plan for reducing the government deficit.

Obama's journeyed into Michigan, heartland of the U.S. auto industry, a day after he and House Speaker John Boehner met one-on-one for the first time to discuss ways to avert the "fiscal cliff." That has become the shorthand name for an economically deadly combination of across-the-board tax increases and dramatic spending cuts that, without an agreement between the White House and Congress, would hit Americans on Jan. 1 and could push the fragile U.S. economy back into recession.

In his Michigan speech Obama extolled the virtues of American labor as well as his plan to boost the tax rate on individuals earning more than $200,000 a year and for couples with annual income above $250,000. Michigan is in the midst of an angry fight in which its Republican governor and state legislators are trying to decrease the power of labor unions, a powerful voice for workers in the auto industry.

Obama called the attack on unions a political attempt "to take away your right to bargain for better wages."

The White House meeting Sunday was the first private negotiation session between Obama and Boehner since the Nov. 6 election and could mark a turning point in the stalemate over the U.S. budget crisis. It coincides with moves by growing numbers of rank-and-file Republicans toward with what they called pragmatic ideas to break the stalemate. Obama and Boehner agreed not to release details of their weekend conversation, but aides said it proved lines of communication remain open.

The country faces the fiscal cliff because tax rate cuts that were put in place during the administration of former President George W. Bush expire at the end of the year. The pending across-the-board reductions in government spending, which will slice money out of everything from social programs to the military, were put in place last year as an incentive to both parties to find spending reductions. That legislation grew out of the two parties' inability in 2011 to agree to a tax and spending program that would have taken a big bite out of the deficit.

Compounding the likely devastating effects of failure to agree on a means of avoiding the fiscal cliff will be the coincidental expiration of extended government benefits for the long-term unemployed and the expiration of temporary cuts in the payroll tax that funds the government's Social Security pension program.

The White House meeting suggests there may be pressure on Boehner to side with a number of Republicans who think the party should change how it approaches negotiations with Obama after the bruising national election that left Democrats in charge of the White House and Senate.

While Republicans have long opposed raising tax rates on upper income Americans, some in the party are suggesting the its legislators relent on taxes in order to win concessions from the president on changes to benefits programs.

Boehner's office indicated Monday that he wasn't ready to take that step.

"The Republican offer made last week remains the Republican offer," said Brendan Buck, a Boehner spokesman. He was referring to a Republican plan that offered $800 billion in new revenue over the next decade through reducing or eliminating unspecified tax breaks on upper-income earners, but not by raising tax rates.

The White House also showed no new signs of flexibility. Spokesman Jay Carney reiterated that there could be no deal without tax rate increases on the wealthiest Americans.

"He's eager to get a deal, and he believes a deal is possible," Carney said.

Business leaders, tired of Washington's partisan bickering creating uncertainty in the marketplace, emphasized the need to make a deal before the end of the year.

Jeff Immelt, GE's chief executive and head of a presidential advisory council on competitiveness, said increased revenue will have to be part of a deal.

"The millions of people that work for us, their lives are in flux. And this is incredibly critical we get this done now," Immelt said in remarks aired Monday on CBS.

The "fiscal cliff" refers to rate increases that would affect every worker who pays federal taxes, as well as spending cuts that would begin to bite defense and domestic programs alike. Economists say the combination carries the risk of a new recession at a time the economy is still struggling to recover fully from the worst slowdown in decades.

A congressional pragmatist acknowledged yet again that Obama may have the upper hand in the short term.

"There is a growing group of folks looking at this and realizing that we don't have a lot of cards as it relates to the tax issue before year end," Republican Sen. Bob Corker told Fox News.

If Republicans agree to Obama's plan to increase tax rates on the top 2 percent of Americans, Corker said, "the focus then shifts to entitlements, and maybe it puts us in a place where we actually can do something that really saves the nation."

But such ideas face an uphill battle. Many House Republicans say they will not vote for tax rate hikes under any circumstances, fearing the Republican leadership could lose leverage in the negotiations if it raises the rate on upper-income earners without getting anything substantial in return like entitlement reform. They have targeted Social Security and Medicare, the expensive health insurance program for older Americans.

Democratic leaders have suggested they are unwilling to do any work on those spending programs in the three weeks left before the fiscal cliff would be triggered.

"I just don't think we can do it in a matter of days here before the end of the year," Senate Democratic Whip Dick Durbin said of Medicare reform, in an interview Sunday on NBC.

Obama's plan would raise $1.6 trillion in revenue over 10 years, partly by letting decade-old tax cuts on the country's highest earners expire at the end of the year. The highest rates on top-paid Americans would rise from 33 percent and 35 percent to 36 percent and 39.6 percent, respectively.

The Republican plan also would cut spending by $1.4 trillion, including by trimming annual increases in Social Security payments and raising the eligibility age for Medicare from 65 to 67.

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