Speaking in the East Room of the White House in his first public remarks since winning reelection on Tuesday, Obama's tone was both conciliatory and defiant as he pledged to work in good faith with his congressional opponents while remaining adamant that taxes for the highest-earning Americans must increase alongside spending reductions.
"I want to be clear. I'm not wedded to every detail of my plan. I'm open to compromise. I'm open to new ideas. I'm committed to solving our fiscal challenge," Obama said. "But I refuse to accept any approach that isn't balanced."
The debate is casting a long shadow over the financial-advisory sector. Along with tax rates on ordinary income, rates for capital gains, dividends and the estate and gift taxes are all set to increase at the end of the year if the White House and Congress can't reach a deal. Meanwhile, uncertainty about the government's ability to address the fiscal cliff has been roiling markets this week, with the Dow tumbling more than 400 points since the election.
Many economists and business leaders, as well as the nonpartisan Congressional Budget Office, have warned that the combination of tax increases and across-the-board spending cuts would likely send the economy back into recession, a circumstance that leaders of both parties are eager to avoid.
Obama has advocated a proposal that would extend the Bush-era tax cuts for all but the wealthiest Americans, setting the cutoff at $250,000 in household income. Republicans, meantime, have held firm in their opposition to raising any tax rates, instead indicating that they could get behind a plan that would boost tax revenue through a combination of closing loopholes and exemptions along with measures to achieve new revenues through economic growth.
On Friday, House Speaker John Boehner (Ohio) reiterated his opposition to rate increases, calling for an extension of the current cuts ahead of a bipartisan effort at comprehensive tax reform in 2013, along with an overhaul of entitlement programs like Medicare that are driving up the deficit.
"2013 should be the year we begin to solve our debt through tax reform and entitlement reform," Boehner said at a press conference. "I'm proposing that we avert the fiscal cliff together in a manner that ensures that 2013 is finally the year that our government comes to grips with the major problems that are facing us. This will bring jobs home, result in a stronger, healthier economy. And a stronger, healthier economy means more Americans working and more revenues -- which is what the president is seeking."
Obama, for his part, signaled a commitment to tackle entitlement programs, but returned to one of the core messages of his campaign that spending cuts alone are insufficient to bring down the deficit without gutting investments in domestic initiatives for long-term growth such as tuition assistance and worker training programs.
"As I've said before, we can't just cut our way to prosperity. If we're serious about reducing the deficit, we have to combine spending cuts with revenue, and that means asking the wealthiest Americans to pay a little more in taxes," Obama said. "I just want to point out this was a central question during the election. It was debated over and over again. And on Tuesday night, we found out that the majority of Americans agree with my approach."
Claiming a mandate for rate increases could be problematic. In an interview with ABC News earlier this week, Boehner said that rate hikes are a nonstarter in the House. Meantime, Obama has indicated that he will veto any measure that doesn't allow the tax cuts lapse for top earners.
On Friday, he pointed out that even with the dispute over tax rates for the top earners, Republicans and Democrats still agree that the tax cuts should be extended for the remainder of the population, and asked House lawmakers to approve a bill to extend the cuts for families earning less than $250,000, a measure that has already cleared the Senate.
"Even as we're negotiating a broader deficit-reduction package, let's extend the middle-class tax cuts right now. Let's do that right now," Obama said. "That one step will give millions of families -- 98% of Americans, and 97% of small businesses -- the certainty that they need going into the New Year. It would immediately take a huge chunk of the economic uncertainty off the table."