Obama's push to boost tax revenues: Will voters approve?

In deficit talks, Republicans insist on spending cuts, while Obama and Democrats want a 'balanced approach' that includes higher tax revenues. Political analysts say it's time for the president to make his case to the public.

President Obama has entered a dicey phase of his presidency, as he heads toward an end-game with the congressional Republican leadership on deficit reduction and, ultimately, a deal to raise the federal debt limit.

Mr. Obama is expected to make remarks about the negotiations at an East Room press conference Wednesday at 11:30 a.m. Eastern. Later in the day, the president and vice president will meet with the Senate Democratic leadership in the Oval Office to discuss next steps.

Big spending cuts are already a given. In preliminary White House-GOP talks, which ended last week, Vice President Joe Biden and more junior GOP leadership came up with hundreds of billions of tentative cuts in federal spending. The hard part – taxes and entitlements – falls to Obama to sort out with the top Republicans, House Speaker John Boehner and Senate minority leader Mitch McConnell. All told, the goal is to reach $2 trillion in savings to cover an increase in the debt ceiling beyond the current $14.3 trillion limit.

The White House is adamant that any deal include revenue increases, including closed tax loopholes and eliminating subsidies. Republicans are equally adamant in ruling out anything that could be described as a tax increase.

Politics is never far from the calculation. For Obama, who is running for reelection, the goal is to reach a deal via a “balanced approach” – that is, both spending cuts and revenue increases – that does not hand the Republicans an easy campaign ad of Obama calling for higher taxes. The Republicans are also trying to get Obama to agree to cuts in Medicare and Medicaid.

“This will be a test of whether he has the leadership gene,” says Cal Jillson, a political scientist at Southern Methodist University in Dallas. “He’s an attractive politician, a very effective campaigner. But in governance, if you look back over the first two years, you have to say that turning so much over to Congress has left the public with a bad feeling about where we are, especially on health care.”

Now, Professor Jillson says, it’s time for Obama to present the public with a thoughtful argument about how to address the nation’s fiscal imbalance – including revenue increases. “I think the public is in a somewhat different place than even a year ago,” he says. “People do see the financial and economic consequences of failing to solve these budgetary issues of deficit and debt.”

The deadline for Congress to raise the debt ceiling is Aug. 2, at which point the United States will begin to default on its debts, which could be devastating to the economy, according to Treasury Secretary Timothy Geithner. The negotiations are likely to go right up to the last minute.

Last December, Obama punted on the recommendations of his bipartisan deficit commission, which included a 2:1 ratio of spending cuts to revenue increases. In January, Obama’s State of the Union address again did not directly tackle the looming fiscal crisis, driven foremost by an unsustainable rise in entitlement spending. In April, when House Budget Chairman Paul Ryan put out a budget that dramatically changed Medicare and Medicaid, sparking a negative public reaction, Democrats were happy to reap the political reward.

Now Obama is on the hot seat. Progressives oppose cuts in social services and favor ending America’s foreign wars and cutting back on defense spending. To keep his political base engaged with his reelection campaign, Obama can’t cut a budget deal with the Republicans that alienates core Democrats. He also needs to win back independent voters, who were crucial to his election in 2008 but whose support has faded.

The White House has floated a series of proposals aimed at wealthier individuals and entities that would bring more revenue into the Treasury: Eliminate government subsidies for the oil and gas industries; raise taxes on hedge fund managers; close a tax loophole that benefits private jet owners; change the way business inventory is taxed.

Those changes don’t produce significant revenue, at least when stacked up against the $2 trillion needed in spending cuts and revenue increases. But one proposal would bring in hundreds of billions of dollars: a cap on the tax deductions of households earning more than $500,000 at 10 percent of adjusted gross income.

Republicans object to all of the above as tax increases. The White House throws the argument back in their faces, portraying the GOP as protecting the wealthy at the expense of the public good.

“On the issue of revenue, do we perpetuate a system that allows for subsidies in revenues for oil and gas, for example, or owners of corporate private jets, and then call for cuts in things like food safety or weather services, things that the federal government really needs to do?” White House press secretary Jay Carney said at his briefing Monday.

The good news for Obama is that the debt ceiling issue should be resolved on or around Aug. 2, well before his November 2012 date with voters. Democrats are hoping for a deal that funds federal operations through 2012, not a temporary fix that will require more debt ceiling votes before Election Day.