White House rejects GOP plan: Tax rates for top 2 percent must go up

It did not take long for the White House to dismiss the Republican deficit-cutting proposal, which raised revenues by capping deductions. Now both sides have laid down their markers.

In a way, the Republicans have done what the White House wanted: They have put out their own plan in response to President Obama’s proposal last week for deficit reduction.

But it didn’t take long for the White House to dismiss the GOP offer, released Monday afternoon by Speaker John Boehner and other House Republican leaders. Not only does the Republican plan call for only half the revenue the president wants – $800 billion over 10 years versus $1.6 trillion – it does so by limiting tax breaks, not by raising tax rates on the most wealthy.

The Boehner plan also includes a $1.4 trillion cut in spending, for a total of $2.2 trillion of deficit reduction over the next 10 years. The cuts include reductions in federal health-care spending on programs such as Medicare, Medicaid, and the Affordable Care Act. Savings are also derived by lowering cost-of-living increases in Social Security.

“The Republican letter released today does not meet the test of balance. In fact, it actually promises to lower rates for the wealthy and sticks the middle class with the bill,” White House communications director Dan Pfeiffer said in a statement. “Their plan includes nothing new and provides no details on which deductions they would eliminate, which loopholes they will close, or which Medicare savings they would achieve.”

Independent analysts who have looked at “plans like this one,” Mr. Pfeiffer said, have concluded that taxes will have to go up to pay for lower rates for “millionaires and billionaires.”

Mr. Obama is willing to compromise to achieve a deal, Pfeiffer noted, but the president is not willing to compromise on the issue of tax rates for the top 2 percent: They must go up.

Pfeiffer’s statement ended by throwing back at the Republicans the same dismissal they had used against the president’s plan last week: that it’s not “serious.”

“Until the Republicans in Congress are willing to get serious about asking the wealthiest to pay slightly higher tax rates, we won’t be able to achieve a significant, balanced approach to reduce our deficit our nation needs,” he said.

The dueling moves by the Democratic White House and congressional Republicans represent a laying down of markers as the calendar winds down toward the so-called “fiscal cliff” – the $607 billion in spending cuts and tax increases due to take effect if Congress doesn’t act.

Obama is adamant that Bush-era tax cuts continue for all but the wealthiest 2 percent of taxpayers. Under that scenario, the top marginal tax rate would go up from 35 percent to 39.6 percent. Republicans say that a tax increase on top earners would hurt small business, because many file their taxes as individuals. That, they say, would hurt job creation and the economy’s already sluggish recovery from a major recession.

In their letter to Obama, Boehner and company said they had based their proposal on a “middle ground approach” presented to Congress last year by Democrat Erskine Bowles, co-chair of the president’s debt commission in 2010.

But Mr. Bowles rejected that characterization.

“While I'm flattered the speaker would call something ‘the Bowles plan,’ the approach outlined in the letter Speaker Boehner sent to the president does not represent the Simpson-Bowles plan, nor is it the Bowles plan,” he said, referring to the Republican co-chair, former Sen. Alan Simpson of Wyoming.

“In my testimony before the Joint Select Committee on Deficit Reduction, I simply took the mid-point of the public offers put forward during the negotiations to demonstrate where I thought a deal could be reached at that time.”