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Obama changes tune on tax rate

Increase on rich not part of 2011 deal

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While he now demands that higher tax rates for the wealthy must be part of a "fiscal cliff" deal, President Obama took a very different line just over a year ago in the last major clash with Congress over a long-term budget deal.

In comments Republicans on Capitol Hill are highlighting, Mr. Obama argued in the summer of 2011 that the government could raise more than $1 trillion in revenue without increasing tax rates paid by the rich — something the president now contends is mathematically impossible.

"What we said was, give us $1.2 trillion in additional revenues, which could be accomplished without hiking taxes — tax rates — but could simply be accomplished by eliminating loopholes, eliminating some deductions and engaging in a tax-reform process that could have lowered rates generally while broadening the base," the president said at a July 22, 2011, White House news conference.

Mr. Obama's position today is that his $1.6 trillion plan to avoid the fiscal cliff of tax increases and deep spending cuts must include higher tax rates for the top 2 percent of the income scale.

"It's not me being stubborn. It's not me being partisan. It's just a matter of math," Mr. Obama said this week in an interview with Bloomberg.

During remarks to corporate CEOs at the Business Roundtable on Wednesday, Mr. Obama called on the leaders to urge Republicans to accept the tax-rate increases and not to use the debt ceiling to gain leverage for more entitlement cuts in the fiscal-cliff negotiations.

The president made the comments on a day when he and House Speaker John A. Boehner, Ohio Republican, spoke by phone about a deal to avoid the fiscal cliff. Aides to both men gave no details about the call, and no plans for a face-to-face meeting were announced.

Separately, Treasury Secretary Timothy F. Geithner was laying down a much tougher line by saying the administration was "absolutely" prepared to go over the fiscal cliff if Republicans refuse to bend on higher tax rates for the wealthy.

"There's no prospect in an agreement that doesn't involve those rates going up on the top 2 percent of the wealthiest Americans," Mr. Geithner, one of the White House's lead negotiators in the talks, told CNBC in an interview.

His remarks drew an immediate rebuke from one key Republican.

"This is one of the most stunning and irresponsible statements I've heard in some time," said Sen. Orrin G. Hatch of Utah, the ranking Republican on the Senate Finance Committee.

Republicans on Capitol Hill quickly denounced the statements from Mr. Obama on the debt ceiling, saying raising the federal government's borrowing limit is Congress' job and should remain so, despite Mr. Obama's proposal to make it more difficult for lawmakers to block an increase.

"The president wants to have the ability to raise the debt ceiling whenever he wants, for as much as he wants, with no responsibility or spending cuts attached," said Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell, Kentucky Republican. "This is an idea opposed by Democrats and Republicans alike; it's a power grab that has no support here."

Highlighting inconsistencies

Mr. Boehner's office on Wednesday was highlighting media reports on the White House's shifting line on tax increases, saying Mr. Obama's previous position aligned closely with the plan House Republicans are offering.

Republicans have demonstrated "there is a middle-ground solution that can cut spending and bring in revenue without hurting American small businesses," Mr. Boehner said in a statement. "It's a solution President Obama himself once supported. If the math worked in 2011, why doesn't it work today?"

Mr. Obama didn't lay out the specifics of his 2011 plan at the time — exactly which deductions and loopholes he would target to produce the revenue. He is now criticizing Republicans for failing to lay out the details of their plan.

But in making his offer to Mr. Obama this week, Mr. Boehner cited a nine-page report by the Committee for a Responsible Federal Budget, a nonpartisan, business-backed group that provided three options for finding the necessary revenue by limiting deductions without increasing tax rates.

White House officials said Republicans are not telling the full story about Mr. Obama's 2011 quote. The president's comment, they said, was part of an agreement with Republicans to spend the next year overhauling the tax code to find additional revenue, and if Washington couldn't get all the complex tax changes through Congress by the end of 2012, tax rates on the top 2 percent of Americans would go up.

Jason Furman, deputy director of the National Economic Council and an assistant to the president for economic policy, also said the White House has "done a lot of work" in the past year in crunching numbers and now "knows more about tax reform" than it did in 2011.

"We didn't sit here twiddling our thumbs," Mr. Furman told reporters during a briefing Wednesday.

"So just at a purely analytical level, we know more about tax reform, we know more about tax expenditures, we know more about all of those topics now than, we've, you know, known before," he said.

One of the items that the president's economic team evaluated was the idea of capping deductions at $25,000 for all Americans. But that proposal, Mr. Furman said the White House found, would raise taxes by an average of $2,400 on 17 million middle-class households and would create a serious disincentive for all Americans who hit that threshold to contribute to charities because they wouldn't get a tax benefit for doing so.

Placing the limit on households making more than $250,000 would generate only $800 billion, Mr. Furman said, and would create an immense "cliff," in which someone whose income rose to $251,000 could suddenly owe thousands of dollars more in taxes.

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