The president is turning up the heat on John Boehner and Mitch McConnell. GOP tries to cope with tax hike reality

With three weeks to go before the Bush tax rates expire and the Pentagon and other federal agencies face tens of billions of dollars in spending cuts, a reality for Republicans has set in: Tax rates are going up, and the only real question is by how much and for whom.

From Capitol Hill to K Street, many Republicans are discussing a small boost in marginal tax rates that would be coupled with raising the threshold for wealthy Americans facing tax increases from $250,000 to $500,000 or higher in annual income.


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Of course, any rate increase for Republicans — one that rank-and-file lawmakers could back and defend — would have to come with serious cuts to entitlement programs. And there’s no evidence President Barack Obama and Democrats have given in on any specific entitlement cuts in closed-door negotiations — especially enough to offset a rate change and an increase in the threshold for the rich.

“Both sides have to hold hands and jump on this one,” said a top Senate aide.

Yet if House Speaker John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) are unable to come to an agreement with Obama, the highest marginal tax rate will jump from 35 percent to 39.6 percent on Jan. 1, the same as it was under former President Bill Clinton. Tax rates on estates will soar, and nearly 30 million more Americans will get hit with the alternative minimum tax, originally aimed at making sure wealthier individuals and families couldn’t completely avoid federal taxes.

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There are numerous problems with the modest tax hikes for entitlement cuts trade off, which GOP Hill aides stressed has not been formally offered yet.

First, Democrats believe they are dealing from a place of strength in these negotiations and are unlikely to give up concessions on entitlement programs without big moves by Boehner.

“We are winning,” said a top Hill Democratic staffer. “We don’t have to give up on anything yet.”

Boehner also faces pressure from his right and is concerned whether House Majority Leader Eric Cantor (R-Va.) and Budget Committee Chairman Paul Ryan (R-Wis.) will support him. He has so far refused to agree to any increase in tax rates even though many in his party are already acknowledging such an outcome is unavoidable. The best Republicans can do, these lawmakers say, is limit the size of the increases while working to shift the political blame to Democrats.

“The speaker is opposed to raising tax rates, because raising tax rates costs jobs,” said Michael Steel, spokesman for Boehner.

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On top of that, any suggestion Republicans could back a tax increase faces some stiff opposition in the Senate.

“That doesn’t really help solve the problem,” Sen. Orrin Hatch (R-Utah) said of increasing the tax threshold for the wealthy. Hatch is ranking member of the powerful Finance Committee. “I’m against raising tax rates. We know that if we raise those tax rates and we don’t have corresponding reductions in spending, we’ll get the tax rates and no spending reductions. That’s just a game that the Democrats play over and over and over, and the American people let them get away with it sometimes.”

Boehner has proposed an $800 billion increase in revenue over the next decade, but he wants to get there by closing unspecified loopholes and eliminating deductions. Obama, on the other hand, is seeking as much as $1.6 trillion in additional revenue with an increase in the top tax rates as the centerpiece of that effort.

Another lingering problem: the debt ceiling. Obama and his aides, privately to Hill aides and GOP lawmakers, including Boehner, have insisted on lifting the nation’s credit limit as part of a fiscal deal. Democrats don’t want to move from the fiscal cliff brawl into another budget battle over the debt limit in early 2013 with the GOP having more leverage in that case. Republicans are open to the idea, but requisite spending reductions and entitlement changes must offset any increase of the borrowing limit. In recent days, there have been proposals swapped between the two sides, but there’s been no appreciable change in the negotiations.

There’s also another wild card: McConnell. As they try to forge an agreement with Boehner, there are open questions about how many votes McConnell could — and would — deliver, especially if he were to vote against the bill.

“It’s one thing if McConnell votes against it,” said a top Senate Democratic leadership aide. “It’s another if he whips against it, because then you lose any chance that [GOP Sens. Lamar] Alexander or [Saxby] Chambliss or [Lindsey] Graham could vote for it. They will follow McConnell’s lead here.”

Right now, Boehner and the White House are mum on any progress, and there are no signs of breakthrough yet, although the pace of talks is clearly accelerating.

While he was on his way to Detroit on Monday, Obama called Senate Majority Leader Harry Reid (D-Nev.) from aboard Air Force One. That followed a one-on-one he had with Boehner at the White House on Sunday and earlier discussions with both Reid and House Minority Leader Nancy Pelosi (D-Calif.).

Both White House and Boehner aides have tried to clamp down on press leaks out of the discussions, seen as a hopeful sign by many on Capitol Hill that the talks are getting serious.

Obama, though, is trying to keep up the pressure on Boehner and McConnell, with Democrats believing that they are about to see more GOP lawmakers cave and support a tax increase. Currently, almost a dozen House and Senate Republicans have said they would support such a proposal in order to resolve the fiscal cliff fight, with another handful seen as leaning that way. Momentum is clear on the side of Obama and the Democrats as the Jan. 1 deadline gets closer.

Obama and his Democratic allies are trying to step up public pressure on Boehner and McConnell, as well. The Democratic Congressional Campaign Committee began robocalls to 35 House GOP districts on Monday, and Obama for America activated its own email list to lobby GOP lawmakers. Reid publicly called on Boehner to allow a vote on a “middle-class tax cut” for all families and individuals earning less than $250,000 per year, which Boehner has refused to do so far.

During his appearance at a Daimler auto plant, Obama said the average middle-class family would see its taxes rise by $2,200 next year unless a fiscal cliff deal were reached.

“How many of you can afford to pay another $2,200?” Obama said during the campaign-style event. “That’s a hit you can’t afford to take.”

The way Democrats see it, it’s up to Republicans to come their way on a proposal. Unless the GOP can find a proposal that moves Democrats away from their insistence of a top rate of 39.6 percent on income over $250,000, that’s their final offer.

This article tagged under: Taxes

Fiscal Cliff

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