Obama challenges Republicans to renew contentious Bush-era tax cuts

In duelling statements to the press yesterday, US president Barack Obama and the Republican speaker of the House John Boehner laid out their starting positions in fiscal talks to begin next week.

Speaking in the East Room of the White House for the first time since his re-election, Mr Obama challenged the Republican-controlled House to renew Bush-era tax cuts for the middle classes now, rather than hold them hostage to tax cuts for the wealthiest 2 per cent.

The issue “was a central question during the election”, said Mr Obama. Exit polls showed “that the majority of Americans agree with my approach and that includes Democrats, independents and a lot of Republicans . . . as well as independent economists and budget experts”.

Leverage

The president asked for a “balanced approach” – Democratic code for raising taxes on the wealthy. “Our job now is to get a majority in Congress to reflect the will of the American people,” he said. “Let’s extend the middle-class tax cuts right now.” Pulling a pen from the breast pocket of his suit for dramatic effect, Mr Obama added: “I’ve got the pen ready to sign the Bill right away.”

At a press conference on Capitol Hill two hours earlier, Mr Boehner rejected the suggestion that Republicans lost leverage in the election.

“There’s a Republican majority here in the House,” he said. “The American people re-elected the Republican majority.”

He also rejected Mr Obama’s proposal to raise taxes on households earning more than $250,000 (€197,000) a year, to rates practised under president Bill Clinton. “The problem with raising tax rates on the wealthiest Americans is that more than half of them are small business owners,” said Mr Boehner.

Mr Obama said 98 per cent of Americans and 97 per cent of small businesses would not be affected by his proposed tax increase.

Non-partisan

Mr Boehner twice cited a study by accounting firm Ernst Young that said raising the top tax rate would destroy nearly 700,000 jobs. He did not mention a study published on Thursday by the non-partisan Congressional Budget Office which indicated that only 200,000 jobs would be affected. The budget office also said that, contrary to Mr Boehner’s predictions, raising taxes for wealthy Americans would depress economic growth only slightly.

By challenging Mr Boehner and the House, in front of middle-class Americans brought to the White House for the occasion, Mr Obama pre-designated Republicans as culprits if the Bush tax cuts expire on January 1st and everyone’s taxes rise.

This is a replay of the battle between Mr Obama and Congress in the aftermath of the 2010 mid-term elections, when the president wanted to allow the cuts to expire for the wealthy, but was forced to extend them for two years.

Recession

Mr Obama is trying to shelter the middle-class tax cuts, which Republicans want to use as a bargaining chip, from complex talks on the “fiscal cliff” – automatic tax rises and spending cuts agreed last year to resolve the debt ceiling crisis. If that agreement takes effect on January 1st, the budget office predicts it will plunge the economy back into recession and drive the US unemployment rate from 7.9 per cent to 9.1 per cent by the autumn of 2013.

The challenge facing Mr Obama and the Republicans is to find an alternative agreement reconciling the revenue increases desired by Mr Obama with the spending cuts the Republicans demand, by the end of the year.

“We can’t just cut our way to prosperity,” said Mr Obama. “If we’re serious about reducing the deficit, we have to combine spending cuts with revenue – and that means asking the wealthiest Americans to pay a little more in taxes.”