White House insists taxes must be part of the debt and deficit solution

President Obama on Monday engaged congressional leaders one on one in a bid to break partisan deadlocks over the budget, especially the GOP taboo on raising taxes, and to get his administration's derailed debt and deficit negotiations back on track. But it's clear that his starting gambit is to try to persuade Republican lawmakers – and the public – of the need for higher taxes for some Americans.

Tax increases – or at least ending tax breaks for corporations or the highest-income Americans – will have to be in the mix, White House spokesman Jay Carney said Monday morning after Mr. Obama met with Senate majority leader Harry Reid. “It’s the only way to get it done,” he said.

Senate majority leader Mitch McConnell (R) of Kentucky, who meets with the president Monday evening, took to the Senate floor with a sharp warning to the White House to take tax hikes off the table.

“Not only are [higher taxes] counterproductive from the standpoint of an economic recovery," he said, "they’re also politically impossible, since Republicans oppose tax hikes and Democrats have already shown they won’t raise taxes in a down economy.”

A measure to raise taxes on the highest-income Americans failed in the Senate in December, when Democrats held a strong majority of 59 seats. Five Democrats broke ranks to vote with all Republicans to oppose a measure to boost taxes on those with incomes greater than $250,000 a year.

“You can’t get a tax hike through this body,” says Don Stewart, a spokesman for Senator McConnell. "Now, they’re asking for $600 billion in tax increases. You don’t get there by closing corporate loopholes.”

That prospect of some $600 billion in tax hikes, along with new spending proposals by Democrats intended to stimulate job creation, is what prompted GOP negotiators – House majority leader Eric Cantor of Virginia and Sen. John Kyl of Arizona – to walk out of the debt talks led by Vice President Joe Biden last Thursday.

If anything, their exits have only hardened partisan positions on the tax question, because it places the responsibility for a deal squarely with a new set of negotiators – the president, Speaker John Boehner (R) of Ohio, and majority leader Reid, none of whom can be seen to be giving ground too quickly on such a high-profile, partisan commitment.

“The theatrics that McConnell and Boehner have to play out in the wake of the Cantor-Kyl walkout is tougher, because they have to show that they are holier – or tea partier – than they,” says Stan Collender, a budget expert with Qorvis Communications in Washington. “The White House has nothing to lose by raising the stakes on taxes, because Boehner and McConnell can’t agree to anything for another three weeks or so. If they come up with a deal too early that’s not to the tea party’s liking, they’ll say [Boehner and McConnell] didn’t bargain hard enough.”

Republicans blame the debt crisis on a government that spends too much. The threat of default by Aug. 2, if Congress fails to raise the $14.3 trillion national debt limit, is a historic opportunity to force a change of course, GOP leaders say. Any increase in taxes blunts the drive to cut the size and scope of government.

Democrats say the problem is that government is taking in historically low tax revenues, especially after the Bush-era tax cuts. The solution to the current debt crisis is a “balanced approach” that includes both spending cuts and tax increases, especially those that target the wealthiest taxpayers, Big Oil companies, and firms that outsource jobs overseas.

“Please listen to the overwhelming majority of the American people who believe that deficit reduction must be about shared sacrifice,” said Sen. Bernard Sanders (I) of Vermont in a letter to the president on Sunday. “The wealthiest Americans and the most profitable corporations in this country must pay their fair share.” A member of the Senate Budget Committee, Senator Sanders is releasing a plan that calls for tax increases to account for at least half of any debt- and deficit-reduction plan.

From a policy perspective, both sides can claim that economic data support their claims. US tax revenues are at a post-World War II low as a percentage of the nation’s gross domestic product, now standing at 14.4 percent for fiscal year 2011, according to the White House Office of Management and Budget.

In part, that’s due to the Bush tax cuts, as Democrats say, says Chuck Marr, director of federal tax policy with the Center on Budget and Policy Priorities. But it’s also due to the weak economy, a GOP talking point.

“The US economy is extremely weak now, and the logic is you don’t want to raise taxes. But you don’t want to cut spending, either. It’s worse to do that,” he says.