In his first public comments as a triumphant incumbent, President Barack Obama insisted that he won a clear mandate to increase taxes on the rich and warned Congress to fall in line.
“On Tuesday night, we found out that a majority of Americans agree with my approach,” Mr. Obama said on Friday. “Our job now is to get a majority in Congress to reflect the will of the American people.”
Moving to exploit his new-found leverage, Mr. Obama outlined the parameters of the budget agreement he is seeking with House of Representatives Speaker John Boehner and Democratic leaders in Congress. He invited them to the White House next week to “build consensus” toward a major agreement to cut the deficit, but stressed that making the wealthy “pay a little more” is a non-negotiable condition of any deal.
“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,” Mr. Obama added during an address at the White House.
Whether Mr. Obama can engineer a deal will depend not only on Mr. Boehner’s ability to deliver the votes of a majority of House Republicans. It will also hinge on whether the President can persuade Democrats in the Senate to accept cuts to Medicare and other so-called entitlement programs.
“I think the President realizes that you have to have systemic entitlement reform,” said Patrick Griffin, who served as former president Bill Clinton’s congressional liaison in the mid-1990s. “That is not going to go down very well with Democrats in Congress,” he said.
With little time to savour his victory, Mr. Obama is now in a race to avert about $650-billion (U.S.) in automatic spending cuts and tax increases that are set to take effect in 2013. Known as the fiscal cliff, the measures would likely thrust the economy into recession.
If U.S. business leaders are putting pressure on the administration to avoid the cliff, however, they are just as adamant that Congress come up with a long-term budget plan that tackles the deficit and the rising cost of government health and retirement programs.
On Friday, and for the second time since the election, Mr. Boehner reiterated his opposition to raising tax rates on the wealthy. But he left open the possibility of ensuring an increase in government revenue through a reform of the tax code that lowers rates and eliminates deductions – similar to the plan advocated by GOP nominee Mitt Romney.
“Raising tax rates will slow down our ability to create the jobs that everyone says they want,” Mr. Boehner said. “By lowering rates and cleaning up the tax code, we know we are going to get more economic growth. It’ll bring jobs back to America. It will bring more revenue.”
The President, however, campaigned on raising the top marginal tax rate of 35 per cent to 39.6 per cent on couples earning more than $250,000 a year (and individuals making more than $200,000). He did not indicate on Friday whether he would go along with Mr. Boehner’s suggestion, but said: “I’m not wedded to any detail of my plan. I’m open to compromise. I’m open to new ideas. I am committed to solving our fiscal challenges.”
The Boehner approach might satisfy the White House, since the elimination of deductions would still result in the wealthy paying more in taxes, even if overall tax rates come down. But Democrats in Congress may seek to hold Mr. Obama to his promise to raise the top tax rate, while some Republicans would balk at Mr. Boehner’s plan.
In exchange for accepting revenue increases, Mr. Boehner is demanding cost reductions in Medicare and Social Security, which cover senior health-care and retirement benefits, respectively.
Democrats have resisted that idea. And Democratic Senate Majority Leader Harry Reid may be reluctant to endanger the re-election chances of the 20 Democrats who must face voters in 2014 by putting Medicare and Social Security on the table.
“Whatever happens, both sides are going to have to hold hands and jump,” Mr. Griffin said. “Other than the President, who is not up for re-election, everyone else has to come back and [a budget deal] is not going to be without risk for members of either party.”