On Wednesday, President Barack Obama signaled he would not insist tax rates on upper-income Americans rise to Clinton-era peaks as part of a deficit-reduction deal.
The position of the White House marks a potentially important moment in Washington’s effort to figure out how to handle tax rates that is due to increase next year. The White House opens a range of possibilities for negotiators.
The debate among Democrats and Republicans over how to avert $500 billion in spending cuts and tax increases has left stock-market investors reacting to each profession of optimism and pessimism from officials.
Policy makers have a month to resolve their differences before the tax increases and spending cuts begin.
The White House has said it wants tax rates on household income above $250,000 to rise, with the other rates holding pat. A full return to Clinton-era rates would have households paying a 36% rate on income earned between $250,000 and $388,000, compared with 33% today, and 39.6% rate on income above that level, up from 35%. Negotiators could pursue having tax rates rise on upper-income Americans to 37% or 38% instead of 39.6%. That could be coupled with new limits on the tax breaks for those households, something GOP leaders say they would oppose. Another option would be to leave rates unchanged but lower the income thresholds for when higher rates kick in, which Democrats would dislike.
The White House has previously said its $1.6 trillion, 10-year deficit-reduction proposal included roughly $1 trillion from the expiration of some Bush-era tax cuts, including rates for upper-income taxpayers, investment taxes and estate taxes, plus another $600 billion from tactics such as limits on tax deductions. Many House Republicans have said they would not accept any deal that allows tax rates to rise on households earning more than $250,000, and they have suggested they could raise tax revenue instead by eliminating certain tax breaks and deductions.
The CEOs used the time to both talk about their companies and to push for certain policies they believe would help their businesses. A number of the executives Wednesday called for Mr. Obama to lower corporate tax rates to help make their businesses more competitive with companies overseas. Some told Mr. Obama they would move fewer jobs offshore with a more competitive corporate tax structure, but they seemed willing to accept the White House’s demand that individual income-tax rates for higher earners would rise.
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