Wealthy to see taxes rise in deficit reduction plan: Obama
Published Friday, November 9, 2012 7:02AM EST
Last Updated Friday, November 9, 2012 4:39PM EST
A showdown over making wealthy Americans pay more taxes is shaping up between newly re-elected U.S. President Barack Obama’s Democrats and their Republican opponents. Both sides are preparing for talks on how to avoid a looming fiscal cliff that could drag the United States into recession and pull down other economies, including Canada.
Obama has invited congressional leaders from both parties to the White House next week. While both sides said Friday they want -- and need -- to reach a deal, getting one could be difficult as they have already staked out sharply opposing positions.
"If we're serious about reducing the deficit, we have to combine spending cuts with revenue,” Obama said as he made his first public appearance following his re-election victory over his Republican rival Mitt Romney.
“On Tuesday night, we found out that the majority of Americans agree with my approach… and that means asking the wealthiest Americans to pay a little more in taxes."
Deep spending cuts that take effect Jan. 1 as Bush-era tax cuts expire -- $800 billion next year alone -- threaten to drag down the U.S. economy. Congress’ failure to reach a debt reduction package would mean increased income taxes for all Americans in the New Year, which would be bad for the economy, said Obama.
The president favours boosting tax rates to Clinton-era levels for families with an income topping $250,000.
Obama said he's not going to ask students, senior citizens 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."
But the solution, according to Republicans, is to rely soley on spending cuts, not raise tax rates of the rich.
“The deficit is a drag on our economy and we can’t continue to spend money that we don’t have,” said John Boehner, the speaker of the Republican-controlled House of Representatives.
But raising tax rates on the wealthiest Americans -- many of them who are small businessmen -- is the wrong fix, he said.
"Raising tax rates will slow down our ability to create the jobs that everyone says they want," Boehner said.
Congress needs to start to correct the debt problem through tax reform and entitlement reform, he said.
“Everything on the revenue side and on the spending side has to be looked at,” he said.
This is an opportunity for the president to lead and engage Congress, Boehner added.
A Congressional Budget Office report released on Thursday said the automatic tax increases coupled with spending cuts would slice $503 billion from the deficit. But millions of jobs would be lost as the economy would shrink 0.5 per cent next year, it said.
But GDP would grow 2.2 per cent if Bush-era tax cuts were extended, the CBO said. That scenario is unlikely to happen as the White House said Friday Obama would veto any bill that would extend the Bush-era tax cuts for top earners.
Obama’s plan would trim $4 trillion from the deficit over the next decade. While he said he’s open to compromise, the president made it clear he would refuse to accept any approach that isn’t balanced.
With files from The Associated Press