Business Blog Posts

Obama named Treasury Secretary Tim Geithner and budget director Jack Lew to work with congressional Republicans and Democrats on a deal to prevent broad tax increases from hitting middle-income Americans next year.

The working group will also tackle the issue that most divides the two political parties: what to do about extending tax cuts for the wealthiest Americans.

At their first White House meeting since the November 2 congressional election, Obama and Republicans stuck to their divergent positions but the president said they agreed the issue must be resolved by the end of this year.

"We agreed that there must be some sensible common ground, so I appointed my Treasury Secretary, Tim Geithner, and my budget director, Jack Lew, to work with representatives of both parties to break through this logjam," Obama said.

If no agreement is reached, all tax-paying Americans could see higher bills next year, giving Republicans a chance to score politically by making tax cuts their priority when taking control of the House of Representatives in January.

Finding common ground before then will be tricky.

Chris Van Hollen, a top Democrat in the House of Representatives, said the chamber could vote on Thursday to extend lower tax rates on income levels up to $200,000 for individuals or $250,000 for couples, allowing rates for the wealthiest 2 percent of Americans to rise.

That vote is seen as a gesture to liberal Democrats, who want to go on record opposing an extension for top earners. If the measure passes the House, it will likely die in the Senate, where Democrats would not have the votes to make it law.

Knowing that, the president may have to agree to extend cuts for Americans of all income levels for one to three years -- an onerous option to many Democrats but one that may be the most likely outcome if the two sides agree on anything at all.

But many analysts are not optimistic.

Charlie Smith, chief investment officer at Pittsburgh-based Fort Pitt Capital Group, said there was less than a 50 percent chance that the tax cuts will be extended.

WIDE DIFFERENCES

Obama said he and many Democrats continue to believe it would be "unwise and unfair" to spend $700 billion to extend tax cuts for the wealthiest Americans while also trying to bring down the U.S. deficit.

Republican leaders, emboldened by gains in the elections, argued it would be better for the economy if tax cuts for all Americans were extended.