WASHINGTON — President Barack Obama and House Speaker John Boehner circled each other warily Friday, defending their competing approaches for resolving the budget impasse even as both professed their willingness to reach common ground.
Obama, in his first formal remarks since the night of his re-election, said he would open discussions with congressional leaders next week to seek a compromise, and then, before an applauding crowd of supporters in the White House’s East Room, defended the “detailed plan” that he campaigned on — including higher taxes on top earners.
“I’m not wedded to every detail of my plan. I am open to compromise. I am open to new ideas,” he said. “But I refuse to accept any approach that isn’t balanced.
“We have to combine spending cuts with revenue, and that means asking the wealthiest Americans to pay a little more in taxes,” he said, calling for Congress to immediately extend existing tax rates for 98 percent of taxpayers.
The president wants to let George W. Bush-era tax cuts lapse on individual income above $200,000 and on married couples above $250,000. That would push the top tax rate from 35 percent to 39.6 percent.
The election showed “a majority of Americans agree with my approach,” Obama said. He called for immediate action by lawmakers to prevent rates from rising for middle-income taxpayers. “We shouldn’t need long negotiations or drama.”
Boehner, citing a “cordial” conversation with the president on the morning after the election, said that he is “hopeful that productive conversations can begin soon so that we can forge an agreement that can pass the Congress.”
But he insisted, as the Republicans said throughout the campaign, that “the problem with raising tax rates on the wealthiest Americans is that more than half of them are small-business owners.”
“Raising tax rates,” he added, “will slow down our ability to create the jobs that everyone says they want.”
Boehner cited a study by Ernst & Young that said higher tax rates would cost the economy 700,000 jobs, and he said that is the reason Republicans want to extend all of the tax cuts.
The study was sponsored by business groups opposed to tax increases, including the U.S. Chamber of Commerce. The 700,000 is a long-run figure, and the study assumed that Obama’s proposed tax increases would pay for higher spending, not deficit reduction as the president says.
Asked whether the election had weakened his hand, Boehner said: “There is a Republican majority here in the House. The American people re-elected the Republican majority.”
His hands are tied partly because members of his party still have a wary eye on the electoral landscape. Sen. Mitch McConnell of Kentucky, the Republican leader and a crucial player in the budget talks, is up for reelection in 2014 and may resist any deal that could foster opposition back home.
But many members of Congress clearly see recent events as creating an opening in the postelection session of Congress, when some retiring and defeated lawmakers could have a freer hand on voting for legislation. Republicans were weakened by losing seats in both the House and the Senate, while Democrats are eager to move to issues such as immigration, which animated Hispanic voters and helped deliver victory Tuesday.
“The conditions are there to act,” Sen. Bob Corker, RTenn., said Thursday. “I think the environment is different now.”
One reason is that if Washington were to remain in complete gridlock, all tax brackets would revert automatically to those under President Bill Clinton and spending would be cut automatically across the board — the abrupt changing of economic gears known as the “fiscal cliff” because of its likely economic effects.
The nonpartisan Congressional Budget Office underscored the stakes in a report Thursday that framed Washington’s dilemma.
It said that if automatic spending cuts went into force and all the Bush-era tax cuts expired, the nation would slip into recession next year and unemployment would rise to 9.1 percent, from October’s rate of 7.9 percent. But simply canceling those deficit-reduction measures would risk a financial crisis that would make matters worse, the report said.
The report suggested that allowing the Bush-era tax cuts to expire for households earning more than $250,000 a year — favored by the White House and its Democratic allies, but strenuously opposed by congressional Republicans — would have relatively modest economic effects.
Congressional aides said that on a conference call of House Republicans on Thursday, a number of lawmakers spoke up to say they needed to give their leaders breathing room and avoid brinkmanship.
“I don’t want to box myself in,” Boehner said Friday. “I don’t want to box anybody else in. I think it’s important for us to come to an agreement with the president. But this is his opportunity to lead.”
But the forces arrayed against a budget deal remain powerful, and the gap between the parties — at least in their public postures — is wide. Liberals, backed by Sen. Harry Reid of Nevada, the Senate majority leader, say Social Security should not be part of any deal.
“House Republicans must end their intransigence on tax cuts for the very wealthy and sit down on a bipartisan basis to finish the work of this Congress,” said Rep. Sander Levin of Michigan, the ranking Democrat on the House Ways and Means Committee, where tax legislation is written.
McConnell, the Senate Republican leader, drew attention to Obama’s lack of new policy on spending.
“We have yet to hear from Democrats on spending and entitlement reform,” he said in a statement after Obama spoke. “Every one of us wants to help the American people by helping the economy grow, and Republicans are eager to hear the president’s proposals on this and many other pressing issues going forward. The president has a duty to lead. We implore him again to do so.”
Boehner said that “by lowering rates and cleaning up the tax code, we know that we’re going to get more economic growth.”
“It’ll bring jobs back to America,” he said. “It’ll bring more revenue.”
Republican congressional aides told Bloomberg News on Oct. 19 that they were designing options for trading rate preservation for tax-break limits if the politics allow.
The idea has promise if Republicans are willing to consider new revenue that doesn’t come from economic growth, said Michael Linden, director of tax and budget policy at the Center for American Progress, a Washington group aligned with Democrats.
“They’re going to be able to start with some of those things that raise money without raising rates, and that only gets them so far,” Linden said.
A second Congressional Budget Office report released Thursday threw cold water on Republican beliefs that a simplified tax code that lowered income and payroll taxes and closed provisions to make up for lost revenue would substantially close the deficit by increasing economic growth. Such a plan would raise about $100 billion a year by 2020, far less than Democrats say is necessary, the report said.
The blueprint for a deal to avoid a fiscal nightmare early next year may be found in the failed debt negotiations between Obama and Boehner in mid-2011.
The contours of that plan included revenue increases, spending cuts and changes to lower the long-term costs of entitlement programs. Before the talks collapsed, Boehner was willing to accept $800 billion in revenue increases and Obama was ready to settle for $1.2 trillion.
Part of their negotiations on a $4 trillion deficit-cutting plan included a gradual increase in the Medicare eligibility age to 67 and an alternative yardstick for calculating inflation that would reduce annual Social Security cost-of-living adjustments.
There are other pressing and potentially costly matters facing the lame-duck Congress, too. One is an extension and overhaul of farm programs, including emergency relief for the drought, which persists over much of the nation’s middle.
Another is providing federal assistance to the states hit hard by Hurricane Sandy, a bill that could easily come to tens of billions of dollars.
Then there is the looming deadline for raising the debt ceiling, a matter that may prove hard to untangle from the related questions of spending and taxation.
“It is an issue that is going to have to be addressed, sooner rather than later,” Boehner said Friday.
The Treasury Department expects the country to hit its debt ceiling, a legal limit on the amount the government is allowed to borrow, close to the end of the year. That would give Congress only a matter of weeks to raise the ceiling, now about $16.4 trillion, before sending financial markets into a panic.
In 2011, congressional Republicans would not raise the debt ceiling without a broader agreement to cut the country’s deficit and set it on a better fiscal path. The impasse over finding spending cuts and tax increases to do that led to the creation of the automatic spending cuts that loom on Jan. 1, the same time the Bush-era tax cuts were also set to expire.
Information for this article was contributed by John H. Cushman Jr. of The New York Times and by Julianna Goldman, Richard Rubin, Mike Dorning, Heidi Przybyla, Roxana Tiron and Margaret Talev of Bloomberg News.
Front Section, Pages 1 on 11/10/2012