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Analysis

Obama Relishes Tax-Hike Contrast

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President Barack Obama listens to an interpreter as he meets with Honduras President Porfirio Lobo in the Oval Office at the White House in Washington, Wednesday, Oct. 5, 2011. (AP Photo/Charles Dharapak)(AP Photo/Charles Dharapak)

President Obama would have preferred the super committee produce a bipartisan deal, but what remains is not so bad: the prospect of up to $6 trillion in debt reduction if Congress does nothing, and the certainty of sharply defined election-year contrasts with Republicans.

Obama has done nothing to encourage a deal. Indeed, from the beginning, after he agreed to accept the super committee formula in exchange for raising the debt ceiling, he has kept his hands clean. Obama’s political advisers consider the debt-ceiling fight last summer a transcendent moment in American politics, and not in a good way.  

 

Having allowed Congress to fail on its own, Obama is not about to take the reins of a process that could further erode voter confidence in him. He laid out his preferences in September, officials said. They include a $1.5 trillion tax hike, mostly on the wealthy, some cuts to entitlements and domestic spending, and a $1 trillion reduction in defense spending. 

Obama plans to lay the failure at the feet of Republicans, who, he will say, were constitutionally incapable of raising taxes on wealthy Americans. This sets the stage for an election-year debate about the Bush-era tax cuts for the top two income brackets. He will say less about how obviously broken Washington has become.

In the short term, according to White House officials, the president wants Congress to pass an extension of unemployment insurance and to renew his payroll-tax cut, paying for both items with money derived from the drawdown of troops in Iraq and Afghanistan. 

 

This requires a deft touch. If the president slams Congress too hard for its failure, they will be less inclined to work with him on these near-term initiatives. Republicans are more likely to work with him on the payroll-tax cut because they don’t want to be linked to a tax hike, even if that means getting behind an Obama initiative. But unemployment insurance is a different story -- the White House does not know if there are enough Republican votes in the House for an extension of jobless benefits.

Setting these two items aside, Obama will be asked why the committee wasn’t able to come to an agreement. In the past, Obama might have blamed Congress itself, lumping Republicans and Democrats together. Now, though, with an election less than a year away, the president feels freer to make the case that Republicans refused to consider raising revenues, insisting instead that the middle class bear the burden for deficit reduction.

Democrats have always been afraid of making the case that tax increases are necessary, but the politics have changed; jobs and economic recovery are the top priority. Deficit reduction is seen as the primary means to that end (whether it is or isn’t is a separate question), and Americans prefer a mix of cuts and tax increases to achieve it.  

So while Speaker John Boehner, R-Ohio, and Majority Leader Eric Cantor, R-Va., both put out statements on Monday castigating Democrats for their insistence on raising taxes, the White House will turn it around: Republicans were afraid to ask the wealthy to pay their fair share.

 

If Republicans attempt to get around the automatic sequesters by drafting new legislation, Obama will veto it. Though Congress seems willing to cut national security spending (neither guns nor butter), reductions amounting to $55 billion a year over 10 years might be too much. Defense Secretary Leon Panetta has warned lawmakers about the dire consequences of cuts. He did this to put pressure on Republicans to support the super committee, but he may have been so persuasive that his advocacy could undermine a clean set of defense cuts in 2013. 

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