Obama comes out fighting for tax on rich

Pressure mounts on President to strike a deal with Republicans to avert the 'fiscal cliff'

Washington DC

President Barack Obama was back in campaign mode last night, telling an audience of car workers in Michigan that he “won't compromise” on his stipulation that any deficit-busting deal he strikes with Republicans on Capitol Hill to avert the looming “fiscal cliff” must include a tax hike for the rich.

Pressure is rising on both sides to end their stand-off and start moving towards a compromise deal or face the automatic triggering at year's end of significant income-tax increases for almost all Americans as well as a swath of deep spending cuts, which together could amount to about $600bn.

His hand strengthened by his lopsided win over Mitt Romney in November, Mr Obama used his visit to a heavy-lorry plant outside Detroit to press his demand that Congress act to raise tax rates on families earning more than $250,000 a year – or single people earning more than $200,000 – while extending tax breaks in place for almost a decade already for most middle-class earners.

Hopes were raised for a possible end to the deadlock when Mr Obama held first face-to-face talks with Republican leader John Boehner, the Speaker of the House, on Sunday. No details of their discussion were released, however, leaving little clue as to whether any progress had been made. On Friday, Mr Boehner publicly castigated the President, saying he had "wasted another week".

While both men are keeping their respective camps on Capitol Hill up to date, they alone in the coming days must find a way to an accord if the automatic tax increases and spending cuts – the "fiscal cliff" – are not to come about. Economists have warned that if they fail, the impact on those adjustments on the economy could be enough to push the US back into recession some time in 2013.

Business leaders are urging politicians to settle their differences and do a deal. "The millions of people who work for us, their lives are in flux. And this is incredibly critical we get this done now," Jeffrey Immelt, the chief executive of General Electric and head of the President's advisory council on competitiveness, said yesterday. "Everyone knows we need revenue," in addition to cuts in spending, he added.

The days ahead promise to be especially tricky for Mr Boehner. He outraged some on the right flank of his party last week by suggesting he would agree to table $800bn in additional tax revenue for the government over 10 years, achievable mostly by closing deductions and loopholes in the system. But that did not go far enough to meet Mr Obama's demand that actual tax rates be raised on the rich.

Bit by bit, however, Republican unity seems to be cracking, with some senior members of the party beginning to concede that it may be wiser to relent on the tax issue and give in to raising taxes on the wealthy. Polls suggest that most Americans agree with the President.

"There is a growing group of folks looking at this and realising that we don't have a lot of cards as it relates to the tax issue before year-end," Senator Bob Corker, a Republican from Tennessee, commented. He and other more moderate Republicans hope that they would then be in a stronger position to demand deeper social-spending cuts as part of an overall deficit-reduction package.

"The focus then shifts to entitlements, and maybe it puts in a place where we actually can do something that really saves the nation," Senator Corker said.

Striking a deal: the sticking points

Taxation

If no agreement is reached, tax cuts instituted by George Bush will expire for almost all American earners. Most Republicans are fiercely opposed to a tax increase of any kind. But Mr Obama says he will not extend any unless they agree to end the tax breaks for the wealthy.

Entitlements

This is the enormous burden on the budget represented by social safety net programmes such as Medicaid and Medicare. The Republicans want seep cuts, which is anathema to most of Mr Obama's party.

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