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Obama aide presses Republicans to accept more tax revenues

By Jason Lange

WASHINGTON (Reuters) - The U.S. Congress should accept in the next round of deficit-reduction talks that revenue from taxes must be raised further if it expects President Barack Obama to sign off on a deal, the president's top economic adviser, Gene Sperling, said in an interview.

The White House and Congress are trying to reach an agreement that would delay planned austerity measures and keep funding the government, while at the same time cutting the budget deficit over the long term.

Senate Republican leader Mitch McConnell has ruled out raising revenues as part of any deal, but Sperling said a significant chunk must come from higher taxes.

"The president is not suggesting that in this next round of deficit reduction it all be on revenues," Sperling said in an interview taped on Tuesday with Reuters TV's "Impact Players."

"He's just suggesting that we continue to do it in a balanced way so that our overall agreement really is about two dollars in spending cuts for every dollar in revenue."

Republicans and Democrats reached a deal last week to soften an austerity package scheduled to kick in at the beginning of the year that may have pushed the economy back into recession.

However the deal only postponed by two months some of the harshest measures: across-the-board spending cuts in areas like defense and education. Also, a temporary budget measure expires in March and failure to extend it could mean another government shutdown like brief ones in 1995 and 1996.

Some Republicans are insisting deficit-reduction talks now be linked to a debate over granting the Treasury authority to borrow more money.

On December 31, the Treasury hit the $16.4 trillion limit on the amount of borrowing that is authorized by Congress, and the United States will default on its debt within a few months unless the debt ceiling is raised.

Sperling lashed out at Republicans for using the debt limit as a bargaining chip.

"We can fight, we can argue, but neither of us should put a gun to the country's head," Sperling said in the interview with Reuters' Robert Wolf, who advises Obama as a member of the president's jobs council and is a former CEO of UBS Americas.

AN ODD PRACTICE

The United States has the odd practice of authorizing government borrowing in a two-stage process, with Congress first drafting plans to spend more than it raises in tax revenues.

Then, typically every few years, lawmakers raise the debt ceiling to accommodate annual deficits.

Obama has said flatly that he will not negotiate over the debt ceiling, arguing that Congress must pay the bills for spending it has already approved.

Last week, the government allowed taxes to rise on most workers by allowing a two-year payroll tax holiday to expire. And in a substantial compromise by Republicans, the deal also raised income tax rates on the wealthiest Americans while keeping them steady for households making less than $450,000 a year.

The Committee for a Responsible Federal Budget, deficit- reduction group, believes that deal will lower the deficit and come pretty close to stabilizing the debt burden over the next ten years, although not in the longer term.

Sperling sketched out the broad outline of a possible deficit-reduction deal that would involve higher taxes along with spending cuts on social welfare programs, including the federal health insurance program for the elderly and the Social Security pension plan. In Washington these programs are called "entitlements."

Sperling pointed out that Republicans have already expressed willingness to allow taxes to rise on wealthy Americans by eliminating exemptions rather than by raising rates.

"There certainly is significant room for more revenues that are related to things that Republicans have agreed to or proposed," said Sperling, who is the director of Obama's National Economic Council.

He noted that Obama already has floated the idea of reducing the ability of rich people to write off mortgage interest payments from their tax bills.

"That's the type of thing that could be paired with very serious entitlement reform to have the next step of deficit reduction," Sperling said.

(Editing by Christopher Wilson)

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