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Obama 2.0 takes tax fight to the Republicans

Buoyed by his November election victory and polls showing widespread approval of a proposal to raise taxes on the wealthy, US President Barack Obama is taking a tougher line in his first face-off with Republicans since winning a second term.


The dust from the November election has barely settled, but US President Barack Obama is already back on the battlefield.

His opponent, unsurprisingly, remains the Republican Party, but this latest conflict boils down to whether the wealthiest 2 percent of Americans should pay more in taxes as part of a deficit-reduction plan. The lines have been clearly drawn: Obama says yes, his opponents say no.

John Boehner
John Boehner

If the president and congressional Republicans – led by Speaker of the House John Boehner – don’t reach a deal before January, across-the-board tax hikes and spending cuts will automatically take effect and the slowly recovering economy will be sent reeling.

But while the fight feels familiar (there was a similar standoff over the debt ceiling in 2011), the political circumstances are different: buoyed by a decisive victory over Republican challenger Mitt Romney (51 percent to 47 percent in the popular vote) and broad public approval of his stance on the issue, the president has adopted a tougher tone, indicating that he may be willing to wield his power in a more muscular fashion during his second term.

Obama 'supported by public opinion'

“We’re going to have to see the rates on the top 2 percent go up,” he said during an interview with Bloomberg Television on Wednesday. “And we’re not going to be able to get a deal without it.”

That kind of unequivocal formulation is a far cry from the compromises Obama made over the past four years to push through legislation on stimulus spending, healthcare reform and deficit reduction.

“He is feeling strongly supported by public opinion,” said Barry Bosworth, a prominent economist at the left-leaning Brookings Institution. Indeed, polls by CNN, ABC News, the Washington Post, and Pew have shown that up to two-thirds of Americans are in favour of higher taxes for the wealthy – and most would blame the Republicans, not Obama, if an agreement is not reached in January.

The president’s new confidence was reflected in the plan he put forth last week, which called not only for $1.6 trillion in new taxes from the wealthy over 10 years but also $50 billion in additional stimulus money, which includes subsidies for the long-term unemployed and investments in infrastructure.

Moreover, Obama’s plan featured no new cuts to entitlement programmes like Medicare (government-funded healthcare for the elderly) or Medicaid (the national health service for the poor or disabled) beyond what he proposed last year.

During his first term, Obama was widely criticised for not sufficiently selling his policies to the American people. In an effort to rectify that, the president has recently been hosting campaign-style events at which he talks up his deficit-reduction plan before groups of small-business owners, the CEOs of bigger companies and ordinary middle-class Americans.

House Republicans, however, aren’t budging. While Obama refuses to introduce spending cuts unless Republicans accepting higher taxes for the wealthy, Republicans are adamant about not accepting those higher tax rates while simultaneously calling for cuts to social programmes.

The proposal Boehner released on Monday keeps tax rates steady, including for the wealthiest Americans, and sets a goal of acquiring $800 billion in new revenue over the next 10 years by getting rid of tax loopholes and deductions. The plan also includes $600 billion in savings obtained from reforms to Medicare as well as an additional $600 billion in spending cuts.

The Obama administration swiftly dismissed the Republican proposal as "out of balance", saying the plan's numbers did not add up and reiterating that the president would not sign a bill that did not include tax increases for the top 2 percent.

'Untenable position'

According to Karlyn Bowman, a political analyst at the American Enterprise Institute, a right-leaning think tank, the talks are at a stalemate because the Republicans are, in fact, serious. “They’re standing on principle,” she assessed. “They believe that if you raise taxes on the rich, you dampen economic growth at a very precarious time for the economy.”

Boehner tried to keep the ball in Obama’s court on Wednesday. “Now we need a response from the White House,” the Republican leader told reporters. “We can't sit here and negotiate with ourselves.”

But various factors suggest that the president is currently winning the ideological face-off between the Republican fiscal hawks and Democrats, who maintain that the wealthy and the federal government should do their part to help rejuvenate a weak economy.

“Obama is holding a lot of cards right now,” Bowman acknowledged. “He won a solid victory in November, and [polls show that] most Americans are OK with raising taxes on the rich.”

Bosworth agreed. “I see no reason for [Obama] to back down,” he said. “Republicans have clearly lost the public on this issue and backed themselves into an untenable position.”

Republicans may therefore face increasing pressure to bend on their tax stance – especially since recent data indicates that the economic recovery may be losing steam in the aftermath of Hurricane Sandy. “With no deal, there will be a recession and unemployment will grow [from its current 7.9 percent] to about 9 percent,” Bosworth predicted.

Pressure on the Republicans may start to grow even from within their own ranks if polls continue to show Americans holding the party responsible for the gridlock. Interviewed on Fox News recently, William Kristol, a prominent conservative and editor of The Weekly Standard, said: “You know what? It won’t kill the country if Republicans raise taxes a little bit on millionaires.”

But for the moment, at least, Kristol remains a distinct minority.

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