Obama to offer tax hikes in budget showdown

In this April 8, 2011 photo, President Obama poses for photographers in the Blue Room at the White House in Washington after he spoke regarding the budget and averted government shutdown after a deal was made between Republican and Democrat lawmakers.

WASHINGTON -- Higher taxes have been missing from the fierce budget battle that nearly shut down the federal government. But President Obama is about to put them on the table — at least a modest version that he had pushed before and then rested on the shelf.

Most economists and budget analysts say a comprehensive mix of spending cuts and tax increases is essential to any viable deficit-reduction plan. Yet few players in the negotiations have gone there.

It comes in the scramble to heed what is widely viewed as a loud clamor from voters to slam the brakes on runway government spending. There has been no corresponding public demand for raising taxes. That's not surprising, but the top-bracket U.S. tax rate now is the lowest it's been in decades, and it's far lower than those in many other industrialized countries, especially in Western Europe.

Tax elements of Obama's broad deficit-reduction plan, to be laid out in a speech Wednesday, seem likely to revive his earlier proposals.

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The president is expected to bring back his recommendation, first made in the 2008 campaign, to end Bush-era tax cuts for households earning over $250,000 a year. He temporarily set it aside when he signed onto a late 2010 agreement with Republicans to extend all Bush tax cuts for two years.

However, he did renew the bid earlier this year in his budget for the 2012 fiscal year that begins Oct. 1.

Any comprehensive deficit-reduction plan must include a mix of spending cuts and tax increases, experts argue from both sides of the political spectrum.

"There's no alternative, and I don't know of anybody who has seriously looked at this problem who thinks there is," said William A. Galston, a White House domestic policy adviser during the Clinton administration. "You're going to need to put together tough packages of programmatic cuts and revenue increases."

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With a presidential election just around the corner, and voters demanding cuts in government spending, few politicians seem eager to climb out on a higher-taxes limb.

Even Obama's bid to end Bush-era tax cuts for the wealthiest Americans — bitterly fought by Republicans — would just take tax rates on them back to where they were in the 1990s, a decade of strong economic growth.

A sweeping Republican proposal laid down by House Budget Committee Chairman Paul Ryan of Wisconsin proposes trimming more than $5 trillion from deficits over the next decade, but it does so almost exclusively on the spending side of the ledger, including a drastic reshaping of Medicare and other federal safety-net entitlement programs.

The Ryan plan doesn't only fail to propose major new tax increases, it advocates lowering the top tax rates for both corporations and individuals to 25 percent from the current 35 percent.

This comes amid disclosures of low tax payments by some of the nation's biggest companies, including General Electric Co., which made $14.2 billion in worldwide profits last year, but paid no U.S. corporate taxes in 2010.

"We strongly disagree with the lack of balance in Congressman Ryan's approach," White House spokesman Jay Carney said Monday. "We understand that people will come to the table with different views, but the president believes that we have to have balance."

Heavy pressure from the tea party wing of the Republican Party, with its insistence on smaller government and strong opposition to new taxes, has complicated efforts by Republican leaders, especially House Speaker John Boehner of Ohio, to find common ground with the White House.

Democrats aren't exactly crying out for raising taxes now either. Not with approaching national elections and a restive electorate unhappy with levels of federal spending.

Obama's proposal to let the Bush tax cuts expire for families making over $250,000 or individuals earning above $200,000 will be woven into the upcoming presidential election. In emphasizing it now, rather than later, Obama all but assured that outcome.