Obama draws line in tax debate

WASHINGTON — By calling on Republicans to approve a one-year extension of tax cuts for families earning less than $250,000 a year, President Obama escalated the election-year focus on taxes, emphasizing a key distinction between the two parties and seeking to create a mandate for a tax plan after the election.

Neither White House officials nor congressional leaders expect a tax bill to pass before November. Mitt Romney and fellow Republicans want to extend existing cuts for all taxpayers, regardless of income. Obama says the country can’t afford the cost — the price tag for the upper-income tax cuts is about $800 billion over 10 years.

White House aides said Monday that if he was reelected, the president would veto any move to extend all of the upper-income tax cuts.

The tax cuts passed during theGeorge W. Bushadministration expire on Dec. 31, along with the payroll tax cut approved under Obama. If all those cuts go away, a middle-income family that makes about $70,000 a year would face a tax increase of about $3,000. Higher-income families would feel a much bigger bite.

Those tax increases, along with automatic spending cuts scheduled to take effect at the same time, would shrink the federal deficit in half overnight. But many economists say the sudden impact would also throw the nation back into recession.

Congress probably won’t let that happen — lawmakers won’t want to inflict that much pain on so many voters and risk lasting damage to the economy at the same time. So some tax cuts will probably be extended. Which ones will depend on who wins in November.

Over the next four months, both parties hope to frame the issue to their advantage, with much depending on how voters view Americans earning more than $250,000 — the top 2% of the income scale, as Democrats emphasize, or the “job creators” that Republicans talk about.

Even before Obama made his announcement, the Romney campaign sought to push its interpretation, issuing a statement, echoed by congressional GOP leaders, that accuses Obama of seeking to “raise taxes on families, job creators and small businesses.”

Later, in a radio interview, Romney called Obama’s plan “a massive tax increase on job creators and on small business.”

“Successful small businesses will see their taxes go up dramatically, and that will kill jobs,” the unofficial Republican presidential nominee told Virginia-based conservative radio host John Fredericks in an interview taped to air Tuesday.

Obama was equally emphatic in framing the debate his way.

“I’m calling on Congress to extend the tax cuts for the 98% of Americans who make less than $250,000,” he said Monday, standing at a lectern in the White House East Room with a group of working Americans on risers behind him.

The president and his advisors hope to use the tax issue on three levels. Obama wants voters to see the election as a choice between two competing ideologies, rather than as simply a referendum on the economic conditions of the last 3 1/2 years. Highlighting a major policy issue on which he and the Republicans disagree helps that effort.

The nation’s economic recovery is being impeded by “a stalemate in this town … between two very different views about which direction we should go in as a country. And nowhere is that stalemate more pronounced than on the issue of taxes,” Obama said.

The near certainty that Congress will not act on a tax bill in the next several months also allows Obama to continue one of his favorite campaign motifs — running against a “do-nothing Congress.”

Finally, although he did not mention his rival by name, a public debate on taxes plays into the Obama campaign’s separate effort to raise questions about Romney’s own taxes. Obama campaign aides have hammered at Romney in recent days, suggesting that his decision to release only two years of tax returns suggests he must be hiding something.

The issue “sets up a contrast about the choices and priorities of the candidates,” said a senior Obama campaign official, speaking anonymously to discuss campaign strategy.

But the issue also creates stresses in both parties, which will become evident over the next few weeks as the House and Senate schedule competing test votes.

In the House, SpeakerJohn A. Boehner(R-Ohio) has promised a vote to keep all tax rates at the levels established under Bush for one year. A vote on extending all the tax cuts revs up Republican voters but also is designed to be difficult for Democrats from conservative-leaning swing districts. Some of them will probably abandon the president rather than risk being attacked for raising taxes.

Senate Majority Leader Harry Reid (D-Nev.) plans to put Republican senators in a similar bind by holding a vote on what Obama has called for — extending tax rates only for those in the middle class. Some Democrats, however, would like to draw that line at incomes of $1 million rather than $250,000.

Republican leaders oppose extending only the middle-income tax cuts now, fearing they would lose whatever leverage they would have after the election to force Obama to accept an upper-income cut. But some Republican senators facing reelection will be loath to vote against a tax cut for middle-class voters.

The House and Senate votes are expected to be among the last ones of the summer, sending lawmakers home for the long August recess of campaigning with a major dividing line between the parties.

Polls generally show voters are happy to tax the rich, with majorities agreeing with the president that those with the highest incomes should pay more taxes.

At the same time, polls also show that Republicans do better when they frame upper-income tax increases as a threat to small businesses, a group that voters tend to like. “No one should see an income tax hike next year — not families, not small businesses and other job creators,” Senate Minority Leader Mitch McConnell (R-Ky.) said Monday.

In the East Room, Obama made his case for action now.

Noting that both parties agree on extending tax cuts for the middle class, Obama said Congress should approve that step right away and argue about the rest later. “Let’s not hold the vast majority of Americans and our entire economy hostage while we debate the merits of another tax cut for the wealthy,” he said.

For the assembled audience, it was an applause line. Elsewhere, critics were already firing off their rejoinders.

christi.parsons@latimes.com

lisa.mascaro@latimes.com

David Lauter in the Washington bureau and Maeve Reston in Grand Junction, Colo., contributed to this report.