Obama said ready for fiscal-cliff hardball

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WASHINGTON, Oct. 18 (UPI) -- U.S. President Obama will veto bills to avert the "fiscal cliff" unless Republicans raise tax rates on the rich, White House officials told The Washington Post.

Obama is ready to play hardball, whether he wins or loses Nov. 6, because he would be freed from political and economic constraints that previously tied his hands, Obama allies told the newspaper.

Republicans, who have successfully resisted higher taxes as part of a deal to reduce the federal debt, will find the tables turned after the November elections, the Post said.

Painful tax increases are scheduled to take effect automatically starting Jan. 2, unless the newly elected president and Congress can quickly agree to a compromise. The increases would affect 90 percent of all U.S. households. Republicans will need Democratic support to stop them, the Post said, explaining the officials' thinking.

If Obama wins re-election, he would be in a good position to spell out the terms of a bipartisan debt-reduction deal, the newspaper said. If he loses to Republican presidential nominee Mitt Romney, his veto would raise tax rates before Romney takes office Jan. 20.

Undoing the tax increases after the fact could prove difficult, GOP tax aides told the Post, because once tax rates rise, any move to lower them again would increase the budget deficit -- an action that's antithetical to current Republican philosophy.

Some Republicans told the Post they were skeptical Obama would follow through with his threat, noting he backed off from demands for higher taxes twice in the past.

But his veto threat challenges them to a dangerous game of chicken, the newspaper said.

The automatic tax increases and spending cuts would cut the 2013 federal deficit in half, Congressional Budget Office estimates indicate. But they are also projected to cause a double-dip recession in the first half of the year.

House Speaker John Boehner, R-Ohio, and other GOP leaders have labeled Obama's threat a "'Thelma and Louise' economic strategy," referring to the 1991 film in which the lead characters, played by Geena Davis and Susan Sarandon, drive off a cliff rather than surrender to police.

Top GOP aides in both chambers told the Post if Obama wins re-election, Republicans would press him to abandon the idea of raising the top tax rates by offering a deal to stabilize the federal debt, in part by generating significant new tax revenue -- a U-turn for almost all Republicans, who have long opposed higher taxes.

The revenue would come from rewriting the Internal Revenue Code to increase tax collections without raising tax rates, a former senior aide to House Ways and Means Committee Chairman Dave Camp, R-Mich., told the newspaper.

"That's the solution to the Rubik's Cube," said Jonathan Traub, now of Deloitte Tax LLP. "The current president wants additional revenues. Republicans don't want higher tax rates."