Obama stands firm against extending tax cuts for rich

U.S. President Barack Obama speaks about tax fairness and the economy at Florida Atlantic University in Boca Raton, Florida, April 10, 2012.

SAN FRANCISCO/WASHINGTON (Reuters) - President Barack Obama's Democrats traded shots with Republicans on Wednesday about how best to avoid a year-end "fiscal cliff," as the administration insisted on the need to let tax cuts for wealthier Americans expire as scheduled on January 1.

The prospect of higher taxes and automatic spending cuts that kick in next year have spurred calls for Obama to temporarily extend all of the Bush-era tax breaks to coax Republicans into a sweeping debt deal, but the White House stood firm.

"President Obama has been clear about his position and it has not changed," White House press secretary Jay Carney told reporters traveling with Obama to California. "We should not extend and he will not extend the ... Bush-era tax cuts for the wealthiest two percent of the American people."

A top Obama aide separately said the administration was open to a sweeping deal to tackle the debt, if it was "balanced" to include tax revenues as well as spending cuts.

"There is no reason that we as a country should not be able to come together on a balanced grand compromise," White House National Economic Council director Gene Sperling said in prepared remarks to the Economic Club of New York.

Leading Democrats in Congress chimed in to back Obama.

"We agree with the administration that Republicans should not risk a tax hike on the middle class on January 1 by insisting that millionaires and billionaires get a tax break too," said Brian Fallon, a Senate Democratic leadership spokesman.

But Republicans, vying to oust Obama from the White House in the November 6 election, stepped up their calls for a quick extension of across-the-board income tax cuts first enacted under former President George W. Bush, a Republican.

Fanning the debate, former Democratic President Bill Clinton told CNBC on Tuesday that "I don't have any problem with extending all of it now," although he argued making the cuts permanent for the rich would be an error.

His spokesman, Matt McKenna, subsequently said that Clinton did not support extending tax cuts for rich Americans.

Republicans in the House of Representatives plan to hold a vote on extending the Bush tax cuts this summer, possibly before Congress heads out for a month-long recess in August.

House Ways and Means Committee Chairman David Camp told Reuters that Republicans plan to link the vote to the broader issue of a major overhaul of U.S. tax laws and include a mechanism that would force Congress to act quickly next year.

Tepid U.S. job creation in May and a festering European debt crisis have fanned concern about the strength of the U.S. recovery ahead of a so-called "fiscal cliff" on January 1, which some economists say will sharply reduce economic growth.

LOOMING DEADLINES

Income tax cuts signed into law by Bush expire at the end of this year. And in January, deep automatic government spending cuts start kicking in, unless Congress either agrees to a sweeping deal to curb the U.S. deficit before that deadline or passes legislation specifically stopping the scheduled spending cuts.

Analysts and some politicians argue that threat should spur action by lawmakers, but there has been little sign of a willingness for a deal before the November 6 elections.

Obama has consistently argued that taxes on households making over $250,000 a year should be allowed to rise to the pre-Bush level of 39.6 percent, from 35 percent at the moment.

House Democratic leader Nancy Pelosi, however, has opened the door to increasing taxes starting at the $1 million annual income level.

Obama says he will not agree to further spending cuts without steps to increase tax revenues, which Republicans oppose.

Larry Summers, a former U.S. treasury secretary under Clinton and former top economic aide to Obama, said on MSNBC on Wednesday that "we've got to make sure we don't take the gasoline out of the economy at the end of this year."

Summers did not say the tax cuts for the richest Americans should be extended, but Republicans, as they pushed to preserve lower tax rates for everyone, seized on his remark as evidence of a split between Obama and the two Democratic heavyweights.

"It's pretty obvious that the economy needs the certainty of the extension of the current tax rates for at least a year," said Mitch McConnell, the top Republican in the U.S. Senate.

"That would also give us the time to begin to grapple with something we all agree we need to do on a bipartisan basis, which is to reform the whole tax code," McConnell said.

(Additional reporting by Thomas Ferraro, Susan Heavey and Donna Smith; Writing by Alister Bull; Editing by Richard Cowan and Vicki Allen)