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Labor Backs Obama on 'Cliff' as Congress Returns

Union leaders backed President Barack Obama on Tuesday, and the full cast of lawmakers in the "fiscal cliff" debate gathered in Washington for the first time since the elections, setting the stage for a week of trial balloons and rhetorical repositioning.

Dennis Flaherty | Photographer's Choice RF | Getty Images

The labor leaders said Obama remains committed to preserving tax cuts for middle class families and ensuring the wealthy pay more in taxes, outlining plans for a public campaign to pressure Republican lawmakers.

The heads of several labor unions and Democratic-leaning interest groups emerged from an hour-long meeting with Obama, saying they were united with the president on how to avert the fiscal cliff and prevent more financial hardships next year.

"We are very, very committed to making sure that the middle class and workers don't end up paying the tab for a party that we didn't get to go to, and the president is committed to that as well," said AFL-CIO president Richard Trumka.

Labor leaders said they plan to mobilize their members in the coming weeks to press Republicans to support the extension of tax cuts for middle income families. Mary Kay Henry, president of the Service Employees International Union, said labor needs to remain "as engaged as we were in the election throughout the rest of this year to make sure we get the Republican House to say yes to tax cuts for the middle class."

According to participants, White House aides said the president intends to hold campaign-style events across the country after Thanksgiving to drum up support for his proposed solution to the fiscal cliff. It would build upon more than 100 rallies organized by labor unions last week urging members of Congress to avoid cuts to entitlement programs.

Congress, meanwhile, returned from a break after the Nov. 6 elections. The top of the Capitol Hill agenda was dealing with the year-end convergence of urgent tax and spending issues that, if mishandled, could plunge the economy into another recession.

Business leaders were convening at the U.S. Chamber of Commerce, the nation's largest corporate lobbying group, to discuss the "fiscal cliff," while financial markets were mixed. (Read More: Stocks Turn Lower.)

A regular survey of small business sentiment on Tuesday showed hopes of a pick-up in sales, but widespread uncertainty among owners about business conditions in the next six months. The National Federation of Independent Business said its optimism index rose 0.3 point to 93.1 in October. (Read More: Small-Business Index Nearly Flat as 'Fiscal Cliff' Looms.)

"We're three weeks away from serious negotiations on the fiscal cliff," said Greg Valliere, chief political strategist at Potomac Research Group, a Washington policy analysis firm.

"This is a photo-op week, next week is Thanksgiving, then lawmakers will straggle back to Washington to examine what staffers have come up with. The dominant theme in these three weeks will be trial balloons," he said.

Tax, Budget Shock Looms

At the end of 2012, low, "temporary" tax rates enacted a decade ago under former President George W. Bush are set to expire. If Congress does nothing, individual income tax rates will rise sharply. That is a key facet of the "fiscal cliff." (Read More: 'Cliff' Plunge: All but Impossible to Avoid the Pain.)

Another element is deep, across-the-board cuts in federal programs that will take effect in January if Congress takes no action. Lawmakers fear the cuts, known as the "sequester," could devastate the economy and many are working to prevent them.

On the Bush tax cuts expiration, Democrats and Republicans are still deeply split. Obama favors extending the Bush rates for most Americans, but a return to higher, pre-Bush tax rates for income over $200,000 per individual.

Raising tax rates would bring in more revenue to address the federal government's yawning budget deficit. (Read More: Dems Like Romney Tax Idea.)

Republicans oppose higher tax rates for anyone. Senator Saxby Chambliss — a senior Republican who has been a member of an informal Senate "Gang of Eight" focused on fiscal issues — said the GOP's basic position on revenue has not changed.

"What is needed now is for the president to say 'this is what I'll accept,"' Chambliss said in a brief Capitol hallway interview. "He has flexibility to make a deal."

Wisconsin Rep. Paul Ryan, Mitt Romney's running mate, told the Milwaukee Journal-Sentinel that increasing government revenues could be part of a deficit solution, but he stood firm on tax rates.

"You can increase revenues without having to raise tax rates," Ryan said, echoing a Republican theme about boosting revenue through closing tax loopholes and economic growth.

"Our fear is that if you raise tax rates you hurt economic growth. You hurt small businesses. So through tax reform you can get higher revenues without damaging the economy. We think that's the better way to go," he said.

In addition to the union leaders, Obama has scheduled high-profile White House meetings with business and civic in advance of a summit set for Friday of top Republicans and Democrats in Congress.

Both sides generally agree on the need to avoid the jolt of $600 billion in draconian deficit-reduction measures they all agreed to in August 2011. They also agree on a need for long-term deficit reduction and revisions of the tax code. (Read More: Fixing 'Fiscal Cliff' Will Mean 'High, Higher' Taxes: Gross)

The president and congressional Republicans have sounded conciliatory notes since the election on reaching a deal. But it was clear on Monday that the two sides were still far apart, setting up prolonged debate that could keep investors on edge for the rest of the year.

Obama won re-election last week, but Congress remains divided, with Democrats controlling the Senate and Republicans running the House of Representatives.

Economists Call for Compromise

In a commentary that raised eyebrows in Washington, economist Glenn Hubbard, who was the chief economic adviser to Romney, urged Republicans to accept an increase in average tax rates, though not in marginal tax rates as advocated by Obama, as part of a long-term deficit solution.

The president's staff released a list of business leaders expected Wednesday at the White House.

General Electric CEO Jeff Immelt will attend, as well as American Express Chairman and CEO Kenneth Chenault.

Both are involved in an ad hoc lobby group called "Fix the Debt," which is launching an advertising campaign this week on behalf of balanced, long-term deficit reduction.

The CEOs of 17 big U.S. companies involved with "Fix the Debt" have written lawmakers urging speedy resolution of the fiscal cliff.

Intense Lobbying

Washigton is awash in petitions, letters of concern, editorial recommendations and expensive lobbying efforts, particularly by the defense and healthcare industries, which stand to lose billions of dollars.

Universities and research institutions have also organized to fight the cuts, fearing a massive loss of federal funding of research, particularly in the biological sciences.

The nation's mayors, who see great risks to the many federal aid programs for the cities, have also organized against the cuts.

(Read More: Obama to Insist on Tax Increase for Rich)

While the budget cuts and tax hikes are not formally linked, they have become intertwined politically because of timing: both take effect at the beginning of 2013.

Republican leaders have conceded they could support higher taxes, but that the extra revenues should come from getting rid of tax loopholes — not by increasing anyone's tax rates.

"We think you can get that through growth and we think you can get that through reforming the tax code," Rep. Peter Roskam, a senior House Republican, told Fox News.

Democrats also looked unwilling to budge, sticking to their demand for higher rates for the rich.

"Unless you're willing to deal with rates ... you don't really touch the very wealthiest Americans," Rep. John Yarmuth, a Democrat from Kentucky, told MSNBC.

A senior House Republican aide said he doesn't expect any significant movement on the cliff until after Obama's meeting on Friday with congressional leaders, if then.

"The meeting with the president should get the ball rolling in a serious way," the aide said.

Reuters and The Associated Press contributed to this story.

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