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U.S. President Barack Obama speaks about the need for Congress to extend tax cuts for middle class families at the White House in Washington July 9, 2012. (Kevin Lamarque/REUTERS)
U.S. President Barack Obama speaks about the need for Congress to extend tax cuts for middle class families at the White House in Washington July 9, 2012. (Kevin Lamarque/REUTERS)

Obama finds his campaign focus – inequality Add to ...

President Barack Obama wants to shift the focus of the election campaign away from health care and unemployment to a debate about income inequality, betting voters will back his call for tax increases on the rich.

Mr. Obama moved on Monday to revive his push for higher tax rates on the wealthiest Americans, making the proposal a key plank of his re-election strategy. It marked a new offensive in his attempt to cast Republican nominee Mitt Romney as a ruthless corporate raider whose policies would protect the rich. Mr. Romney is against all tax increases.

While Mr. Obama’s position is not new, he had not pushed it much in recent months. By suddenly making income inequality a key part of his re-election strategy, Mr. Obama may be hoping to take the focus off a stubbornly high unemployment rate and discontent over his health-care overhaul, both of which have dominated the news in recent weeks.

The tax plan also provides a unifying theme for his campaign. Some Democrats had complained that it had been lacking as the President centred most of his efforts on wooing selected segments of the electorate, such Latinos, gays and single women.

By taking the fight to Republicans on taxes, Mr. Obama could also energize liberal Democrats. That could help him close the fund-raising gap with Mr. Romney, who took in $106-million in June compared to $71-million for the Obama campaign.

The tax push complements the Obama campaign’s efforts to define Mr. Romney, whose net worth exceeds $250-million, as beholden to billionaire backers and corporate interests.

But the President’s initiative also opens him up to charges that he is fanning the flames of class warfare and threatening a fragile economy by increasing taxes on “job creators.”

Mr. Obama also runs the risk of provoking a colossal political confrontation that could unnerve financial markets – just as last year’s debt-ceiling debate stoked fears that gridlock in Congress could lead the country to the fiscal precipice.

The Republican-led House of Representatives had been poised to extend all of the Bush tax cuts this month. Mr. Obama’s move aims to frame the debate in advance of that vote.

Republican House Speaker John Boehner reacted angrily to the President’s announcement, accusing Mr. Obama of “doubling down on his quixotic call for the same small business tax hikes that have been routinely rejected by the House and Senate.”

He is asking Congress to pass a one-year extension of lower tax rates for households earning under $250,000 (U.S.). The cuts, first passed in 2001 under George W. Bush, were prolonged in 2010 and are now set to expire on Dec. 31.

But while the middle-class would get tax relief for at least another year under Mr. Obama’s proposal, the 2 per cent of U.S. households earning more than $250,000 would see their income taxes rise by thousands of dollars in 2013 in an effort to tame the deficit.

“We’ve tried it their way. It didn’t work,” Mr. Obama said Monday of the “trickle-down” economic theory that inspired the Bush-era reduction in income tax rates on top earners. “The wealthy got wealthier, but most Americans struggled.”

Mr. Romney, who held a trio of fundraisers at the Hampton homes of rich benefactors on Sunday, has moved to blunt his patrician image. He told one fundraiser: “I spend a lot of time worrying about those that are poor and those in the middle-class that are finding it hard to make a bright future for themselves.”

Still, he rejected the Obama proposal on Monday, saying through a spokesperson that “the last thing we need to do in this economy is to raise taxes on anyone.”

Unless Congress passes new legislation, all of the Bush-era tax cuts will expire on Dec. 31. The sudden tax increases on all Americans, along with automatic spending cuts set to take effect on Jan. 31, would sap disposable income and depress economic growth.

Mr. Obama argued on Monday that, since Republicans and Democrats alike want to extend the middle-class tax cuts, Congress should move ahead with legislation to do so in order to provide certainty for investors and average taxpayers.

The Obama administration estimates that extending the middle-class cuts would cost the U.S. Treasury $150-billion in forgone tax revenue in 2013. Imposing pre-Bush era tax rates on the earned income and dividends of the wealthy would bring in about $68-billion next year , according to a report by Congress’s Joint Committee on Taxation.

“The fate of the tax cuts for the wealthiest Americans will be decided by the outcome of the next election,” the President added. “My opponent will fight to keep them in place. I will fight to end them.”

Polls show a majority of Americans think the rich should pay more in taxes, but are also worried increases now could hurt the economy.

Mr. Obama countered that argument by insisting that tax cuts for the wealthy “are [the kind] least likely to promote growth.” That is because the rich are more likely to save the extra money than spend it.

The President also denied his tax plan would hurt job creation, noting that 97 per cent of U.S. small businesses would continue to pay the lower Bush-era tax rates.

By resuscitating his tax plan now, however, Mr. Obama could be endangering the fate of some incumbent Democrats in conservative-leaning swing states and districts, including Missouri Senator Claire McCaskill and Florida Senator Ben Nelson.

The plan also put Mr. Obama at odds with Democratic leaders in Congress, who had sought to increase taxes only on households earning only more than $1-million. They got in line with the President on Monday, but tensions could linger if the tax plan hurts congressional Democrats on the campaign trail.

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