President Barack Obama is hardening his stance in his firstpost-election confrontation with Republicans, declaring he willmake no deal on the country's fiscal future unless congressionalleaders first accept tax-rate increases on top earners.

During an appearance yesterday on Bloomberg Television, Obama'sfirst media interview since his re-election, the president pairedhis ultimatum on taxes with signals he is ready to make concessionsto Republican House Speaker John Boehner's calls for cuts toentitlement programs such as Medicare health insurance for theelderly.

His demands on taxes and a public relations offensive to engagevoters are a shift from Obama's approach to the budget battles ofthe last two years, reflecting greater political leverage after hisre-election and lessons the administration has drawn from pastnegotiations.

“He is in a much stronger position now and he's acting like it,”said Paul Begala, a Democratic communications strategist who workedin President Bill Clinton's White House. “This is a very differentnegotiating position than last time.”

Many Democrats criticized Obama for agreeing to an extension ofPresident George W. Bush's tax cuts in December 2010 and forfocusing on private negotiations with Boehner on raising the debtlimit in 2011 rather than mounting a public appeal.

The automatic tax increases and spending cuts that will takeeffect in January under the so-called fiscal cliff are the firstcrisis of his second term, one that threatens the economicrecovery. The formula adopted to address the nation's long-termfiscal challenges may shape his presidential legacy as well as theretirement prospects and economic security of Americans for atleast a decade.

“We have the potential of getting a deal done,” Obama said inthe Bloomberg interview. “We're going to have to see the rates onthe top 2 percent go up, and we're not going to be able to get adeal without it.”

He suggested that further negotiating sessions with Boehnerwouldn't be productive without a Republican “acknowledgment” thattax rates on high earners will rise.

Obama is seeking to raise income tax rates on individualsearning $200,000 or more a year and married couples earning$250,000 and more annually, while Republicans say that any increasein tax revenues can only come from limiting deductions and otherbreaks. Obama said the Republican approach can't raise enough moneywithout adding to the tax burden of middle-class families.

It's Math

“It's not me being stubborn; it's not me being partisan,” Obamasaid. “It's just a matter of math.”

In greater detail than he has since winning a second term lastmonth, Obama, 51, outlined his vision for a two-stage processwherein both he and congressional Republicans would get immediate“down payments” on their top priorities. He said that would befollowed by more sweeping changes in 2013.

Compromise would mean that the president and Democrats acceptmore spending reductions this year — potentially including slowingthe growth of Medicare benefits — and Republicans agree to tax rateincreases.

“I don't expect Republicans to agree to any plan where they'rejust betting on the come that entitlement reform will happen,”Obama said.

Patrick Griffin, former chief congressional lobbyist forClinton, said Obama's comments frame “the debate in pretty starkand simple terms, saying 'I need an increase in tax rates, and I'llgive you cover on entitlement cuts.'”

Obama spoke the day after Boehner, an Ohio Republican, sent aletter to the White House laying out a proposal to avert the fiscalcliff that included $2.2 trillion in spending cuts and new taxrevenue without raising rates.

“Unfortunately,” Obama said, Boehner's proposal “right now isstill out of balance.”

Reacting to the president's latest comments, Boehner said thatObama “has an obligation” to present a counterproposal that can bepassed by Congress — a test he said Obama's current plan fails —and that Republicans are “ready and eager” to discuss such an offerwith him.

“If the president really wants to avoid sending the economy overthe fiscal cliff, he has done nothing to demonstrate it,” Boehnersaid in a statement.

Senate Minority Leader Mitch McConnell, a Kentucky Republican,lamented the lack of progress in the negotiations.

“We've wasted an enormous amount of time sparring back and forthin public, and it strikes me as a good time to get serious aboutthe proposals,” he told reporters on Capitol Hill. “I had hoped wewould be accomplishing more in the real talks that are going onprivately.”

Compromise Prospects

Even as he insisted on higher tax rates, Obama left room forcompromise with Republicans in end-game talks.

He sidestepped a question about whether he would accept ameasure that increased the top rate from 35 percent to 37 percentor 38 percent — short of the 39.6 percent marginal rate when thecurrent levels went into effect. Obama didn't flatly rule outentitlement cuts, including changing the annual cost-of-livingadjustment for Medicare, the government health-care program for theelderly and disabled.

“I am willing to look at anything that strengthens our system,”Obama said. Still, when asked whether he would be open to benefitcuts, the president said: 'Well, no, that's not what I'msaying.''

On taxes, Obama said that in a 2013 tax overhaul, “it's possiblethat we may be able to lower rates by broadening the base.”

While the president's latest comments drew derision from manyRepublican lawmakers, who said his position would thwart a deal,several said the president had raised their hopes for acompromise.

“I think that's hopeful, to be honest with you,” saidRepresentative Walter Jones, a North Carolina Republican. “Ifthere's going to be an increase, but less than anticipated, that'sa good point to talk.”

Representative Tom Cole, an Oklahoma Republican who hassuggested that his party could be open to raising tax rates, saidthe two sides are closer than they appear. “I actually think we aremoving in the right direction,” Cole told reporters at the Capitolyesterday. “I don't think they're as far apart as it seems.”

Griffin, the former Clinton lobbyist, said the contours of aneventual deal are now in place. “There will likely be more blood inthe street before this is resolved, but I think we'll come back tothis as the defining framework in the broadest sense,” he said.

Debt Limit

Obama also made it clear in the interview that he wants anincrease in the U.S. debt limit as part of any compromise in thecoming weeks. The U.S. will reach the $16.4 trillion debt ceilingthis year, though Treasury can use so-called extraordinary measuresto extend the deadline until at least mid-February, according tothe Congressional Budget Office.

The president said business leaders have told him that theydon't want to see another “debt ceiling crisis” early nextyear.

“America is poised to take off,” Obama said. “Let's make surethat we don't have a self-inflicted wound, because there are a lotof silly games played up on Capitol Hill.”

Concern about the budget debate has whipsawed stocks in the pastmonth. The Standard & Poor's 500 Index slid as much as 5.3percent from its closing level on the day of the Nov. 6 electionsthrough Nov. 15.

The benchmark gauge of American equities has trimmed its declinesince Election Day to 1.5 percent through yesterday and is up 11.9percent for 2012.

The Treasury 10-year note yield was unchanged at 1.60 percent at8:06 a.m. New York time, according to Bloomberg Bond Traderdata.

Boehner and Obama, who last year fell short of forging abipartisan bargain to reduce the deficit while averting a breach ofthe U.S. government's legal borrowing limit, have yet to engage inthe personal negotiations that previously brought them to the brinkof a deal.

At a White House holiday party Monday night, the two men holdingthe keys to a compromise did not speak even to exchangepleasantries, according to aides to both.

“Speaker Boehner and I speak frequently,” Obama said in theinterview. “I don't think that the issue right now has to do withsitting in a room.”

Tea Party

Both are facing pressure from their respective political basesto resist a compromise, with Boehner's anti-tax, Tea Party-infusedHouse Republicans balking at raising tax rates while labor andother Democratic-aligned interest groups rejecting the idea ofcutting entitlements including Medicare and Social Security.

Republican Senator Jim DeMint of South Carolina said yesterdaythat Boehner's proposed revenue-raising tax changes would “destroyAmerican jobs,” and urged members of his party to oppose it.

Other lawmakers who back Boehner's efforts to reach a compromisesaid Obama was squandering the opportunity to strike one.

“He took Speaker Boehner's offer and broke that olive branch inhalf, threw it back at him,” said Representative Pete Sessions, theTexas Republican who is chairman of the House Rules Committee.Rank-and-file members of his party see Obama's ability to “workeffectively or even desire to work with us” as “non-existent,” hesaid.

Obama's explanation for insisting on higher tax rates was atodds with his own budget. The president said lawmakers could onlygenerate revenue “in the range of $300 billion to $400 billion”through curtailing tax breaks, Republicans' proposed way of doingso.

“It's a simple proposition that you can't raise enough revenue,”without increasing rates, he said. “And if you don't raise enoughrevenue through loopholes and deductions, then it's going to bemiddle-class families who make up the difference, and that actuallywould be bad for business.”

Obama's budget plan includes more than $750 billion in revenuethat could be generated from top earners by curbing tax deductionsand credits.

Bloomberg News

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