Obama Hints Economy Strong Enough for Tax Hike
Business + Economy

Obama Hints Economy Strong Enough for Tax Hike


President Obama has previously urged tax hikes on wealthier Americans, only to back down two years ago in the face of a brittle economy and a resistant and resurgent GOP.

That won’t happen again, he assured the country today in his first news conference since securing a second term last week.  The president suggested the economy had become sturdy enough to absorb the consequences of letting the lower tax rates originally introduced by George W. Bush expire for households with incomes above $250,000.

But the country can’t endure a $200 billion hit from letting all of the Bush-era rates end as scheduled next year. That would wallop middle class households who on average have seen their incomes fall in recent years. Obama sought common ground by encouraging the Republican majority in the House to vote for a measure to continue the tax breaks for the 98 percent of the country who fall beneath the $250,000 level.

“What we can do is make sure that middle-class taxes don’t go up,” Obama said. “If we get that in place, we are actually removing half of the fiscal cliff. Half of the danger to our economy is removed by that single step.”

The news conference touched on the FBI investigation that uncovered former CIA director David Petraeus’ extra-marital affair, Syria, Iran, climate change, and Republican criticism of Susan Rice, the ambassador to the United Nations, mistakenly characterizing the Sept. 21 terrorist attack in Libya as spontaneous.

This disagreement with Republicans—who claim increases on wealthier Americans would kill job creation—is the primary source of friction in discussions curb the deficit while averting the fiscal cliff, which also includes $110 billion in automatic spending cuts next year.

When the Bush rates were first slated to expire in 2010, GOP lawmakers basically compelled Obama to break a 2008 campaign promise and extend the rates across-the-board for another two years. Their bargaining power was strengthened at the time by a 9.4 percent unemployment rate, which has since dropped in Obama’s favor to 7.9 percent.

“Two years ago, the economy was in a different situation. We were still very much in the early parts of recovery from the worst economic crisis since the Great Depression,” Obama said. “What I said at the time is what I meant, which is this is a one-time proposition. What I have told leaders privately as well as publicly, we cannot afford to extend the Bush tax cuts for the wealthy. What we can do is ensure that middle-class taxes don’t go up.”

That slow but certain improvement in the economy helps Obama in the negotiations this time around. Back in 2010, the gist of the bargaining was to bolster a fragile economy, whereas the case this time is to not squander what gains have been achieved.

The president opened the door to raising taxes on the wealthy by restricting deductions—an idea touted by some Republicans — but his basic principle is that more of the responsibility for trimming the deficit should rest with high-earners.

His argument is backed up by analysis by the progressive Center on Budget and Policy Priorities. The Washington-based think tank, drawing on projections by the Congressional Budget Office, concluded that the lower rates for Americans with incomes above $250,000 would add just a tenth of a percentage point to gross domestic product.

But House Budget Committee Chairman Paul Ryan, who was Mitt Romney’s running mate in the presidential election, told ABC News that last week’s presidential election did not give Obama a mandate to raise taxes. The Republican majority in the House was preserved, the Wisconsin congressman said, so Obama will have to consider options other than his proposed $1.6 trillion tax increase over the next decade to shear the deficit.

"Raising tax rates hurts economic growth and of all things we need right now, to prevent a fiscal cliff, prevent a recession, prevent a debt crisis, is we need people to go back to work," Ryan said. "There are other ways of getting more revenue into our government without damaging the economy, and that's the kind of thing we hope to achieve."