After Obama’s reelection, overtures from Republicans on debt negotiations

Less than 24 hours after the election, President Obama and congressional leaders moved with alacrity Wednesday to show flexibility in solving the nation’s biggest economic problems and recast Washington’s often divisive politics.

With a sluggish economy facing major threats, House Speaker John A. Boehner (R-Ohio) opened the door to increased tax revenue as part of a bipartisan deal to tame the soaring national debt. Republicans are “willing to accept new revenues,” Boehner said, suggesting he is willing to break with the orthodoxy of many influential Republicans out of a desire to “do what’s best for our country.”

Earlier Wednesday, Obama called Boehner and other top lawmakers to urge them to put aside partisan interests to bolster the economy and advance the interests of the American people. Obama favors raising taxes on the wealthy to help close the nation’s yawning budget hole.

Senate Majority Leader Harry M. Reid (D-Nev.) also extended a hand, saying: “It is better to dance than to fight. . . . It is better to work together.”

The conciliatory remarks came as U.S. stock markets tumbled amid investor concerns that Washington would remain gridlocked in the face of economic threats, including the year-end “fiscal cliff” of automatic government spending cuts and sharp tax hikes.

The comments could offer a path for avoiding the fiscal cliff, which economists warn could plunge the nation into recession, and for forging a compromise to slow the nation’s unsustainable borrowing. Such a deal, in turn, could pave the way for bipartisan agreement on other hot-button issues, such as immigration reform, during Obama’s second term.

But a huge gap still remains, with the White House on Wednesday claiming an electoral mandate to pursue its tax policies and Republicans remaining opposed to any proposals for raising tax rates on the wealthy. Beyond tax policy, there are also divisions over what types of changes, if any, to make to federal entitlements such as Medicare and Social Security.

Markets react

Amid fears that the brutal election campaign has failed to produce new prospects for compromise, U.S. stocks slid about 2.5 percent, to a three-month low. The Dow Jones industrial average fell 312.95 points to 12,932.73, and the Standard & Poor’s 500-stock index fell 33.86 points to 1395.53.

The upcoming debate over spending and taxes could have huge consequences, beyond whether the nation goes over the fiscal cliff. Both parties could face a stiff cost if Americans believe they are playing politics with the health of the economy. Exit polling Tuesday showed that most voters believe the economy is weak and not improving.

Also at stake are the legacies of Obama and Boehner. Both men say they are seeking a long-term budget deal that controls federal borrowing and reforms entitlements so they are sustainable as waves of baby boomers retire in the years to come. In pursuit of that goal, Obama and Boehner carried out negotiations in the summer of 2011 over a “grand bargain,” but that effort failed amid mutual recriminations.

On Wednesday, both sides set down their terms for resuming the discussions. The White House argued that the election results validated its view that the George W. Bush tax cuts for the wealthy — benefiting households earning more than $250,000 per year — must be allowed to expire as scheduled at the end of the year. Officials noted that exit polls of voters showed that nearly half believe the tax cuts should be allowed to expire, while 35 percent are opposed.

Flying back from Chicago to his home in Delaware, Vice President Biden told reporters on Air Force Two that the election produced a “clear sort of mandate about people coming much closer to our view about how to deal with tax policy.”

In the past, Obama has called for proposing about $1.5 trillion in new tax revenue over a decade, allowing rates on the wealthy to rise to 39.6 percent and eliminating a host of tax deductions and loopholes for individuals and businesses.

It is not clear whether Obama will produce another tax proposal as part of negotiations with Congress. Some Democrats expect Obama to invite lawmakers to the White House for intense negotiations, as he did last year, or perhaps to Camp David.

In his remarks Wednesday, Boehner resisted that idea.

“We need to plan for a serious process, focused on substance and not theatrics,” he said. “It won’t happen around a campfire at Camp David, in a secret room at an Air Force base, or — as much as I’d like it — over 18 holes of golf.”

Boehner said Republicans still oppose Obama’s plan to take “a larger share of what the American people earn through higher tax rates.” He said, however, that the party is open to “increased revenue . . . as the byproduct of a growing economy, energized by a simpler, cleaner, fairer tax code, with fewer loopholes, and lower rates for all.”

Republicans have long argued that reforming the tax code will generate revenue by improving the economy, an assertion that budget analysts say is difficult to evaluate. Democrats have insisted that any deal must include changes to the tax code that will provide additional revenue regardless of their effects on the economy.

On Wednesday, Boehner hinted he is also open to the latter, citing his previous willingness to support $800 billion in additional revenue over the next decade in exchange for Obama’s commitment to let the top tax rate fall below the current 35 percent.

In exchange for any agreement to raise tax revenue, however, Boehner said Democrats must not “continue to duck the matter of entitlements,” which he called “the root of the problem.”

Other top lawmakers, however, said they would resist any changes to Social Security.

“We’re not going to mess with Social Security,” Reid told reporters. “We’ll be happy to deal with entitlements, but we’re not messing with Social Security.”

Outside groups

Outside interest groups and advocates have already begun pressing Obama and Boehner not to compromise.

Anti-tax crusader Grover Norquist said Wednesday said the election delivered a warning against raising taxes, with voters endorsing a strong Republican majority in the House and enough Republican senators to filibuster any legislation calling for new revenue.

On the other side, Damon Silvers, policy director for the AFL-CIO, said the election “reinforced the president’s message that he is not going to extend the tax cuts on the upper-income households.”

But the leaders of the parties may be more willing to find ways of compromise.

In his victory speech Tuesday night, Obama said he is “looking forward to reaching out and working with leaders of both parties to meet the challenges we can only solve together,” naming reducing the deficit and reforming the tax code as two examples.

In his own remarks Tuesday night, Boehner was more confrontational, declaring there was “no mandate for raising tax rates.” But by Wednesday, Boehner displayed a greater willingness to engage with Obama.

“Mr. President, this is your moment. We’re ready to be led, not as Democrats or Republicans, but as Americans,” he said. “We want you to lead, not as a liberal or a conservative but as the president of the United States of America. We want you to succeed.”

Suzy Khimm contributed to this report.

Zachary A. Goldfarb is a staff writer covering the White House, focusing on President Obama’s economic, financial and fiscal policy.
Lori Montgomery covers U.S. economic policy and the federal budget, focusing on efforts to tame the national debt.
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