Republican House of Representatives Speaker John Boehner is conceding the rich would foot the bill under his $800-billion (U.S.) proposal to curb tax deductions, and powerful interest groups seeking to protect cherished tax breaks for everything from charitable donations to mortgage interest are already lining up against the plan.
The inevitable resistance to cutting popular tax breaks is another reason President Barack Obama continues to insist on an outright increase in marginal income tax rates on the wealthy to raise more government revenue and curb the deficit in a bid to avoid the so-called fiscal cliff.
But an angry Mr. Boehner fired back on Wednesday, indicating he had already given more ground than the President has by offering to squeeze more tax revenue out of wealthy Americans – a concession that has earned the Speaker criticism from within his own party.
"The revenues we're putting on the table will come from guess who? The rich," Mr. Boehner said. "There are ways to limit deductions, close loopholes and have the same people pay more of their money to the federal government without raising tax rates."
With negotiators for the President and Mr. Boehner locked in budget talks aimed at preventing the U.S. economy from sliding over the so-called fiscal cliff at the end of the month, the dispute over tax rates on the wealthy remains the main – although hardly the only – obstacle to a deal. Without an agreement, tax rates will rise for all Americans on Jan. 1, while punishing automatic expenditure cuts will hit defence and other program spending.
Most analysts agree the White House and Congress are unlikely to reach a comprehensive budget deal before year's end. But they are aiming for a framework agreement to avoid the "fiscal cliff" while setting 10-year targets for spending cuts and tax revenues. The details would be worked out in congressional committees next year. Mr. Obama is seeking an immediate increase in tax rates on the wealthy as a "down payment" in any deal, however, arguing he won a mandate from voters last month to carry through with his plan to raise the top personal income tax rates to 36 per cent and 39.6 per cent. They currently stand at 33 per cent and 35 per cent.
Another reason the President is pushing for the higher rates is he believes Mr. Boehner's plan to eliminate tax breaks for the wealthy would ultimately hurt charitable organizations that help the needy.
"It is possible to do, theoretically. It is not possible or wise to do as a practical matter," Mr. Obama said of the Boehner plan on Wednesday. (The two men spoke by phone later in the day but have not met face-to-face in almost three weeks.) "The reason is that in order for us to raise the amount of revenue that's needed just by closing deductions and loopholes for high earners, we'd have to eliminate or severely cap the charitable deduction."
The United Way and other non-profit organizations held a "Hill Day" on Wednesday to press members of Congress not to change the tax deduction for the $200-billion Americans donate to charities each year.
The deduction costs the federal treasury more than $50-billion in foregone tax revenue annually. Charities worry donations would dry up without it.
Meanwhile, the National Association of Realtors has been warning Congress to "do no harm to housing" by cutting the mortgage-interest deduction. The deduction reduces the tax bill of U.S. homeowners by about $100-billion annually, and critics say it disproportionately benefits the wealthy in solidly Democratic states.
A 2011 study showed that Maryland, California and Connecticut had the biggest per capita tax benefit from the mortgage-interest deduction – almost $500 per resident. The lowest were in dependably Republican states such as Mississippi and North Dakota, with per capita benefits of barely $100.
"The mortgage interest deduction is vital to the stability of the American housing market and economy, and we will remain vigilant in opposing any future plan that modifies or excludes the deductability of mortgage interest," the realtors' association recently said in a statement on its website.
Intense lobbying is also under way by scores of other interest groups pressing Congress to spare them from bearing the brunt of any budget deal.
The Alliance for Savings and Investment, whose members include some of the country's biggest corporations, is running television ads urging voters to contact the White House and Congress to stop Mr. Obama's proposed dividend tax hike.
The President is seeking to tax dividends, currently taxed at 15 per cent, at the same rate as income. Under the Obama plan, the tax rate on dividends for top earners would rise to 43.4 per cent, taking into account the new 3.8 per cent tax on investment income that will help finance the President's health-care law.
Meanwhile, AARP, the powerful U.S. seniors lobby, held its own "Lobby Day" on Capitol Hill Wednesday to urge legislators to leave Medicare and Social Security out of any budget deal. Mr. Boehner is calling for at least $600-billion in cuts over 10 years to those and other entitlement programs as a condition for extracting new revenues from the rich.
"We had lots of folks come in from all across the country," AARP spokesman Josh Rosenblum said of Wednesday's lobbying efforts. "Seven in 10 older Americans don't want Social Security or Medicare cut" as part of any "fiscal cliff" deal.