Obama: Extend Tax Relief Now, Cut Spending Later

The president urges Congress to enact a tax deal before negotiating budget cuts.

President Barack Obama said in an interview that was broadcast on Sunday that he was “modestly optimistic” about the possibility of reaching agreement with Republicans on a budget before the end of the year but denied responsibility for failing to avert the “fiscal cliff” so far.

Unless Democrats and Republicans act before the end of the year, $100 billion in spending cuts and $440 billion in tax increases will be automatically enacted. Economists believe that as a result of this “fiscal cliff,” the country may plunge back into recession. But the two political parties are far apart on what should be done to avoid it. Democrats insist that for a deal to be had, taxes on the rich must increase. Republicans would rather cut public spending.

The president said in an interview with NBC’s Meet the Press that he told congressional leaders on Friday, “If they can’t do a comprehensive package of smart deficit reduction, let’s at minimum make sure that people’s taxes don’t go up and that two million people don’t lose their unemployment insurance.”

The president wants to let the income tax cuts that were enacted by his predecessor in 2001 and 2003 expire for incomes over $250,000 while Republicans favor extending all of the current tax rates. Administration officials say that’s the only thing standing in the way of a compromise: “a refusal by Republicans to accept that rates shouldn’t have to go up on the wealthiest Americans,” as Treasury Secretary Timothy Geithner put it earlier this month.

President Obama similarly argued on Meet the Press that it wasn’t “because Democrats in Congress don’t want to go ahead and cooperate but because I think it’s been very hard for Speaker [John] Boehner and Republican leader [Mitch] McConnell to accept the fact that taxes on the wealthiest Americans should go up a little bit.”

Obama campaigned on raising taxes on the rich and won reelection in November so he can argue that it’s what the American public wants. However, Republican lawmakers argue that they were reelected as well and on the opposite pledge — not to raise taxes ever.

Moreover, Republicans want to limit spending on entitlements which are mainly responsible for ballooning deficit projections for the next ten to twenty years. The president said on Meet the Press that he “offered to make some significant changes to our entitlement programs in order to reduce the deficit” but he has never volunteered specifics.

Comprehensive entitlement and tax reform is needed for fiscal consolidation in the long term but Democrats are just as intransigent in their refusal to cut social spending as Republicans are in their refusal to vote for a tax increase.

Asked about entitlement reform, the president said that he was “prepared to do everything I can to make sure that Medicare and Social Security are there, not just for this generation but for future generations.” Except what Republicans have suggested to do. The president rejected all of their plans for entitlement reform as either unfair, unnecessary or plain wrong.

Pressed on the issue, the president said, “You are not only going to cut your way to prosperity.”

What I ran on and what the American people elected me to do is to put forward a balanced approach to make sure there’s shared sacrifice. […] It is very difficult for me to say to a senior citizen or a student or a mom with a disabled kid: you are going to have to do with less but we’re not going to ask millionaires and billionaires to do more.

Yet in the same interview, he urged Congress to raise taxes now and talk about spending cuts that would be part of a balanced approach later. “If we can get that done,” he said about extending the low-income tax rates for the majority of Americans, “that takes a big bite out of the fiscal cliff. It avoids the worst outcomes and we’re then going to have some tough negotiations in terms of how we continue to reduce the deficit, grow the economy.”

To Republicans, it sounds awfully familiar to what the president has been saying for the last four years. At the same time, they can ill afford politically to be seen as letting taxes go up on middle-class Americans, even if they’re likely to support reducing rates again for most taxpayers after New Year’s when the automatic expiration of the Bush era tax cuts will have freed them of their pledge not to raise taxes.