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Obama, Boehner head for stalemate on tax cuts

President Barack Obama, accompanied by Vice President Joe Biden, gestures as he speaks about the economy and the deficit, Friday, Nov. 9, 2012, in the East Room of the White House in Washington. AP Photo/Pablo Martinez Monsivais

Updated: 2:56 p.m. ET

Setting the stage for a contentious debate over reducing the nation's deficit, President Obama today drew a clear line in the sand about the extent to which he will compromise in order to get a congressional deal on deficit reduction, insisting that while he is "open to new ideas" and "committed to solving our fiscal challenges," he will reject any approach that does not involve a tax increase on America's highest-income families.

The president, speaking from the East Room of the White House to an audience made up partly of middle-class Americans, stressed his commitment to pursuing a bipartisan approach in tackling the so-called "fiscal cliff," a combination of tax increases and spending cuts scheduled to go into effect January 2013 that, left untended, threatens to plunge the U.S. economy back into recession.

"The American people voted for action, not politics as usual. You elected us to focus on your jobs, not ours," he said. "In that spirit," Mr. Obama said, he has invited leaders from both parties, as well as business, labor and civic leaders from across the country, for a dialogue on staving off what many believe is an impending fiscal crisis.

The Bush-era tax cuts are set to expire at the end of the year, and January 1, 2013 also marks the day when $1.2 trillion worth of budget cuts, which cut across domestic programs and the Pentagon, begin to go into effect unless Congress can reach a deal to offset them. On the same day, a payroll tax cut will expire, as will a deferment of payment cuts to Medicare physicians.

"Our top priority has to be jobs and growth. That's the focus of the plan that I talked about during the campaign," said Mr. Obama. But, in a direct challenge to House Republicans, he rejected the idea of extending the Bush-era tax cuts for Americans with incomes of over $250,000 per year.

"I'm open to compromise. I'm open to new ideas. I'm committed to solving our fiscal challenges," he said. "But I refuse to accept any approach that isn't balanced. I am not going to ask students and seniors and middle-class families to pay down the entire deficit while people like me, who are making over $250,00 a year, aren't asked to pay a dime more in taxes. I'm not going to do that."

Publicly, House Speaker John Boehner has signaled an openness to working with the president and Democrats in forging a deal to avert going over the fiscal cliff, stressing that Republicans want to "rise above the dysfunction, and do the right thing together for our country in a bipartisan way."

But in his first press conference following Mr. Obama's re-election, Boehner, too, drew a firm line on the issue of tax cuts. Even while suggesting the Republicans would be open to some increases in revenue, he rejected the notion outright that such money could be brought in via any form of tax hike, immediately setting Democrats and Republicans up for another bitter fight over an issue that has dogged them for years now.

Boehner reiterated his position shortly before Mr. Obama's speech, noting that Republicans want to avert the fiscal cliff without raising any taxes and "in a manner that ensures that 2013 is finally the year that our government comes to grips with the major problems that are facing us." Next year, he argued, "should be the year we begin to solve our debt through tax reform and entitlement reform."

Mr. Obama appears ready to call that bluff, suggesting that his re-election serves as a mandate from the public to carry out his calls to permanently suspend some of the Bush tax cuts. Following the president's remarks, his office reiterated that he would veto a bill to extend those cuts on incomes above $250,000.

"I just want to point out, this was a central question during the election. It was debated over and over again. And on Tuesday night we found out that the majority of Americans agree with my approach," said Mr. Obama. "That includes Democrats, independents and a lot of Republicans across the country, as well as independent economists and budget experts. That's how you reduce the deficit, with a balanced approach."

The president's next task, as he acknowledged, is to get a Republican-led Congress to comply with his wishes.

"Our job now is to get a majority in Congress to reflect the will of the American people. I believe we can get that majority. I was encouraged to hear Speaker Boehner agree that tax revenue has to be part of this equation. So I look forward to hearing his ideas when I see him next week," said Mr. Obama, declining to acknowledge that Boehner has already rejected his approach in two separate news conferences.

Democrats, however, seem to think that House Republicans will cave.

"Boehner wants to compromise; that's why he gave that speech," Sen. Chuck Schumer, D-N.Y., told MSNBC, of his first press conference. "He's not a hard-right guy, he's a mainstream conservative ... and I think it's going to help because the hard right is chastened in a lot of ways."

Even so, economists fear a prolonged stalemate on tackling the fiscal cliff could lead to major setbacks for the U.S. economy.

According to the nonpartisan Congressional Budget Office, inaction on the fiscal cliff could have devastating consequences to the nation's fragile growth: Its analysts warn that a prolonged deadlock could hike the unemployment rate back up to 9.1 percent by next fall, and that that preventing the defense cuts would alone save 40,000 jobs. Meanwhile, the White House lists more than 1,200 government programs that would be subject to cuts if the sequester goes into effect, in which case the number of U.S. food inspectors will go down, FEMA will be subject to cuts, and the FAA's budget will shrink.

On Friday afternoon, Senate Minority Leader Mitch McConnelly, R-Ky., backed Boehner up, declaring in a statement that "there's no consensus on raising taxes."

"While I appreciate and share the President's desire to put the election behind us, the fact is we still have yet to hear an actual plan from the President for addressing the great economic challenges we face," said McConnell. "Now that the election is over, the American people expect a plan that reduces spending, reforms the entitlement system, and puts us on a path to ending our chronic annual deficits--without harming an already fragile economy."

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