With little evidence of progress in the “fiscal cliff” negotiations in Washington, President Obama today takes his message on the road: The president will travel to a toy manufacturing facility in Hatfield, Pa., where he will make the case that Congress should immediately extend the Bush-era tax cuts on income under $250,000 per year.
Mr. Obama's destination appears designed to underline his argument that passage of that extension will help boost holiday spending, and, in turn, the overall U.S. economy. He will tour one of two manufacturing plants of The Rodon Group, which makes parts for Tinkertoys, K'NEX Building Sets and Lincoln Logs, among other products.
K'NEX and The Rodon Group, its subsidiary, boast that the vast majority of the parts in their products are now made in the United States. Mr. Obama is expected to make the case that the companies depend on consumer spending, and that the extension of the tax cut will help keep the company making toys and employing workers. K'NEX has moved much of its production from China to the United States over the past four years.
K'NEX CEO Michael Araten donated to Mr. Obama during the presidential campaign. His company is located in Montgomery County, outside Philadelphia, which broke for the president over Mitt Romney 57 percent to 42 percent on Election Day.
Mr. Obama's trip is an attempt to use the bully pulpit of the presidency to gain additional leverage in the seemingly-stagnant debate in Washington over how to avert the combination of tax hikes and spending cuts known as the “fiscal cliff” which is set to kick in at the end of the year in the absence of a deal. He argues that Democrats and Republicans should extend the Bush-era tax cuts now as discussions over other aspects of the “fiscal cliff” continue.
The key players in the negotiation are Mr. Obama and House Speaker John Boehner, who are seeking to craft a deal that is palatable to their party bases. Mr. Obama wants Republicans to agree to allow the Bush-era tax cuts on income over $250,000 to expire, something the vast majority of Republican lawmakers say is unacceptable; Boehner wants Mr. Obama to agree to significant cuts in Medicare, Medicaid and Social Security, something the vast majority of Democrats oppose.
Boehner has said he is open to raising revenues by closing loopholes in the tax code and eliminating deductions, but he has said he will not accept increases in tax rates – and many House Republicans fear that if they vote for tax hikes, they will face well-funded Tea Party-aligned primary challengers in their next election. Negotiators for Mr. Obama are reportedly calling on Republicans to make a specific proposal for what cuts they would like to make to entitlements. If the Bush-era tax cuts expire on the highest earners, tax rates on income over $250,000 would increase from 35 percent to 39.6 percent, the rate under President Clinton.
Late Thursday, House Republicans said they rejected an offer from the Obama administration that was presented by Treasury Secretary Tim Geithner and White House Congressional Liason Rob Nabors in meetings with lawmakers on Capitol Hill. The $4 trillion offer would have raised taxes $1.6 trillion over a decade and cut $400 billion from Medicare and other entitlements, to be worked out next year.
It would also have extended the payroll tax cut, raised the estate tax to 45 percent on inheritances over $3.5 million, kept Medicare reimbursement rates from being cut (the “doc fix”), extended unemployment insurance and added $50 billion in infrastructure/stimulus spending in the first year, with more such spending in the future. House Republicans characterized the offer as a joke. Senate Republican Leader Mitch McConnell, R-KY, called it a “step backward, moving away from consensus and significantly closer to the cliff, delaying again the real, balanced solution that this crisis requires.”
On Thursday, Boehner's tone concerning the negotiations abruptly turned negative: After stating Wednesday that he is “optimistic that we can continue to work together to avert this crisis and sooner rather than later,” on Thursday he said he was “disappointed” and that there is a “a real danger” of going “off the cliff.” Boehner said that “no substantive progress had been made” over the last two weeks of talks.
The White House said Thursday that the remaining obstacle in negotiations is that Republicans have yet to accept that tax rates on the wealthiest Americans need to go up. Mr. Obama campaigned on raising those races, and national exit polls after Election Day and more recent polling show that 60 percent of Americans support increasing those tax rates. Boehner and other Republicans say that raising those rates will have a chilling effect on small businesses and ultimately harm the economy and reduce hiring.
“The President has already signed into law over $1 trillion in spending cuts and we remain willing to do tough things to compromise, and it's time for Republicans in Washington to join the chorus of other voices – from the business community to middle class Americans across the country – who support a balanced approach that asks more from the wealthiest Americans,” Deputy White House Press Secretary Josh Earnest said Thursday.
In an attempt to reach a breakthrough in negotiations, Democratic Sen. Michael Bennet and Republican Sen. Lamar Alexander have reportedly sent White House and congressional negotiators their plan for an agreement, which includes not-yet-released specifics on entitlement reforms and tax cuts.
Taxes and entitlements are far from the only issue in the “fiscal cliff” standoff: Negotiators are also trying to avert the automatic spending cuts to defense and non-defense programs set to kick in after the end of the year. Those $1.2 trillion in scheduled cuts are the result of a 2011 deal that resulted from House Republicans' reluctance to raise the debt limit. The deal proposed by Geithner Thursday would reportedly have postponed those cuts for a year.
In addition, negotiators are seeking to agree to a mechanism to raise the debt limit once again – it is scheduled to be reached early next year – and avoid another messy battle over what is a difficult vote for many Republicans to extend the nation's debt load. Boehner said Tuesday that “any increase debt limit has to be accompanied by spending reductions that meet or exceed it.”
Earlier this week, Boehner shot down a call by Rep. Tom Cole, the GOP deputy whip and former chair of the National Republican Campaign Committee, to accept Mr. Obama's proposal to extend the Bush-era tax cuts for most Americans now. In an effort to weaken Republican resolve, Mr. Obama has previously called on Americans to tweet about the importance of extending the Bush-era tax cuts for the middle class, and appeared Wednesday with middle class Americans to drive home the point.
Sen. Charles Schumer, D-N.Y., said Thursday that the comments by Cole and some other prominent Republicans – most of whom are not in Congress – were a sign that Republicans are starting to accept Democratic demands. “Why am I optimistic?” he asked, according to Slate. “Because you can smell the winds. When so many Republicans say, hey, we're going to have to give in to the Democrats, that's how it works around here. That's the beginning of their beginning to agree with us, or being required to agree with us.”
Groups on the left, meanwhile, are trying to ensure that Mr. Obama and congressional Democrats do not agree to significant cuts to entitlement programs as part of a deal. Moveon.org dispatched “tens of thousands” of members to state and district offices of lawmakers Thursday to encourage them to “defend the middle class by asking the wealthy to pay their fair share and by preventing any cuts to Social Security, Medicare, or Medicaid benefits.” While the White House has signaled that Social Security is off the table in the negotiations, some Democrats have shown some openness to significant cuts to Medicare and Medicaid – after the fiscal cliff negotiations are completed.
McConnell said Tuesday that instead of engaging in campaign-style events in Pennsylvania, the president should be in Washington. “The people he needs to be talking to are members of his own party so he can convince them of the need to act,” he said.