Bush rates are kept safe in debt-limit talks

The White House, seeking an agreement to raise the nation’s $14.3 trillion debt ceiling by Aug. 2, on Monday said it would not insist that any deal include an end to former President George W. Bush’s controversial tax rates on the wealthy.

President Obama’s tactics are coming into focus as he huddles with congressional leaders to try and break the deadlock on increasing the debt ceiling. 

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Before a meeting Monday between Obama and Senate Minority Leader Mitch McConnell (R-Ky.), White House officials said the president would push to close tax breaks for major oil and gas companies; end tax loopholes for corporate jets; and impose regular income tax rates on the carried interest earned by investment fund managers.

The White House said the president is pushing the GOP to agree to eliminate some tax breaks for businesses and loopholes for wealthier taxpayers, but is not seeking to eliminate the across-the-board rates introduced by President Bush. That means taxpayers who earn more than $250,000 annually have gotten a reprieve.

Obama still wants to scrap the Bush-era rates, but with time running out on the debt-ceiling talks, he made clear Monday that he has a new range of targets.

The president made little progress in an early evening session at the White House with McConnell. 

The Senate leader panned Obama’s plan to raise tax revenues, even by closing special tax breaks for corporations and the wealthy. He also dismissed Democrats’ demands for additional stimulus spending to boost the faltering economy.

 He declared before the meeting that raising any taxes would be “counterproductive from the standpoint of an economic recovery.”

 McConnell asked Obama for proposals to cut the deficit that would not raise taxes and told the president that Republicans will insist on steep budget cuts, caps on future spending and entitlement reform.

 That left the president no closer to reaching a deal to increase the debt ceiling.

 “At some point, the president needs to realize that the reason our debt has skyrocketed 35 percent over the past two years and that our annual deficit is now three times greater than the highest deficit the previous administration ever ran is that spending has spiraled completely out of control,” McConnell said on the Senate floor Monday afternoon.  

Obama had an easier meeting with Senate Majority Leader Harry Reid (D-Nev.) earlier in the day.

Obama and Reid agreed that any deficit-reduction deal must include provisions to include tax revenues.

“They agreed that a significant deal can be reached if it is balanced,” said a senior Democratic aide. “They agreed that revenues need to be a part of that balanced approach.”

Democrats want to end special tax breaks for corporations and the nation’s wealthiest individuals and families. They have also proposed capping deductions for households earning over $500,000 at 10 percent of adjusted gross income.

Democrats argue these tax proposals cannot be called tax increases because they don’t hike income tax rates.

While most didn’t expect the Bush tax rates to be included as part of a debt-ceiling deal, it’s significant the White House made the distinction.

It could put more pressure on Republicans, who say tax increases should be off the table in the talks. There are divisions in the GOP over whether that stance should include all tax deductions and credits, and it could be politically tough for Republicans to defend some specialized tax breaks while social programs are being slashed.

White House officials emphasized that Obama is pushing to eliminate tax breaks for corporations and the rich but does not want to readjust the marginal tax rates set during Bush’s administration.

Obama agreed in December to extend the Bush-era rates through the end of 2012.

“This is about subsidies for oil and gas companies — $40 billion; a loophole that allows for the owners of private corporate jets to benefit enormously, in the billions, compared to, say, Delta or American Airlines — and other measures that benefit millionaires and billionaires, or in some way, you know, complicate our tax code in a way that it isn’t helpful,” White House press secretary Jay Carney said Monday.

Obama met privately with House Speaker John Boehner (R-Ohio) at the White House on Wednesday evening and with House Democratic Leader Nancy Pelosi (Calif.) Thursday morning. 

Boehner and Pelosi are both out of town this week, and no additional meetings are announced, putting the attention squarely on the Senate. 

White House officials requested the meetings with McConnell and Reid on Friday after the Biden talks stalled. The meeting with McConnell was only Obama’s third one-on-one session with the GOP leader. 

 Democratic aides said Obama hoped to turn to “cooler heads” in the Senate after House Majority Leader Eric Cantor (R-Va.) abruptly pulled out the debt-ceiling talks led by Vice President Biden last week. 

“Cantor panicked and now it’s time to bring cooler heads to the table,” a Democratic leadership aide said Friday.

Senate Democratic leaders last week called for an agreement to raise the national debt limit to include a package of stimulus spending.

Obama appeared to endorse that proposal in his weekly address Saturday.

“We can’t simply cut our way to prosperity. We need to do what’s necessary to grow our economy; create good, middle-class jobs; and make it possible for all Americans to pursue their dreams,” Obama said.

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McConnell shot down the idea Monday as “mystifying” and “not serious.”

“The Democrats’ response has been a mystifying call for more stimulus spending and huge tax hikes on American job creators,” he wrote in an op-ed published by CNN. “That’s not serious, and it is my hope that the president will take those off the table today so that we can have a serious discussion about our country’s economic future.”

So far, much of the focus has been on the pressure conservative freshman Republicans in the House have put on Boehner and Cantor not to accept a deal to raise the debt limit without massive concessions from Democrats.

McConnell has felt similar pressure from conservatives in his conference.

Twelve Senate conservatives, including four members of the Tea Party Caucus, have signed a pledge stating they will oppose increasing the debt limit unless three conditions are met. Congressional leaders must cut spending enough to reduce the deficit by half next year; they must implement enforceable spending caps; and Congress must pass a balanced-budget amendment that requires supermajority votes in both chambers to raise taxes. 

Sen. Jim DeMint (R-S.C.), a leading Senate conservative, warned his colleagues Friday not to support the debt-limit increase unless those conditions are met.

“It would be the most toxic vote,” DeMint told ABC News.

DeMint clashed with McConnell and the GOP leadership by supporting different candidates in the 2010 primaries. He helped Sens. Rand Paul (R-Ky.) and Marco Rubio (R-Fla.) defeat candidates favored by the GOP establishment.