Fiscal cliff fight -- what it's really about

Beneath the political posturing is a longstanding ideological rift Republicans and Democrats argue again over the size and role of government "Spending is the problem," House Speaker John Boehner declares Rep. Nancy Pelosi: Spending cuts alone can't resolve the deficit problem Washington (CNN) -- Get past the counterproposals and public sniping of the fiscal cliff negotiations and the issue comes down to a dominant theme of Washington politics of the past 50 years -- Republicans want to shrink the growing government, and Democrats don't. The nation faces automatic tax hikes on everyone and deep spending cuts that include the military in less than three weeks unless President Barack Obama and Congress reach agreement on another way to reduce the chronic federal deficits and debt. Obama demands more revenue from taxes, including higher rates on the top two income brackets. Republicans reluctantly agree to more revenue from unspecified reforms such as eliminating some deductions and loopholes, but so far refuse to accept higher rates on anyone. No deal is possible until a break occurs in the stalemate that has dominated deficit talks for two years and reflects the widening ideological divide in a country increasingly defined by partisan politics. The White House and the lead Republican negotiator, House Speaker John Boehner, continued their posturing this week, with both sides accusing the other of stalling the process by failing to offer realistic proposals. "More than five weeks ago, Republicans signaled our willingness to avert the fiscal cliff with a bipartisan agreement that is truly balanced and begins to solve our spending problem," Boehner told reporters Thursday. "The president still has not made an offer that meets those two standards." In particular, Boehner said Obama's proposal failed to offer the significant spending cuts needed to address the mounting deficits and debt. "It's clear the president is just not serious about cutting spending, but spending is the problem," the Ohio Republican said. Minutes earlier, House Democratic leader Nancy Pelosi of California argued that Obama and Congress already cut spending in budget battles of the past two years. Now, she said, Republicans want spending cuts to address most or all of needed deficit reduction. "At some point you are cutting the seed corn of our future," Pelosi told reporters, adding, "You're not going to reduce the deficit by ... only cutting your way to it because you will cut the prospects for job creation, which produce revenue." At the White House on Wednesday, spokesman Jay Carney complained Republicans have yet to offer details on which deductions or loopholes they would eliminate to raise revenue. "The president will not sign an extension of the Bush tax cuts for the wealthiest," he declared. In the latest developments this week, the two sides exchanged counteroffers that included two shifts by the White House. Democratic sources said Obama lowered his revenue demand from $1.6 trillion to $1.4 trillion but also added changes to the corporate rate to his proposal involving income taxes. The Obama proposal contains his push to extend the Bush-era tax cuts for income up to $250,000 for families, or 98% of Americans. Rates would increase on income over that threshold, an outcome rejected by Boehner despite strong public support for it and growing cracks in his party's anti-tax facade. Obama "holds all the cards," Sen. Ron Johnson, R-Wisconsin, conceded Wednesday on Fox Business Network. "He's the only man that can sign a bill from preventing tax increases. So we may have to do a fallback position where we're just trying to minimize the damage." At the same time, Johnson made clear his belief that the problem resulted from Democrats refusing to corral rising government spending that has fueled the growing deficits. Neither Obama nor Senate Democrats intend "to limit the rate of growth in government, and as a result, they have no plan for doing so," Johnson said. He and other Republicans note that 71% of every tax dollar now goes to support Social Security, Medicare and Medicaid as well as paying off interest on the national debt. By 2026, the cost of those items would equal all federal tax revenue unless changes are made. "The president wants to pretend spending isn't the problem," Boehner said. "That's why we don't have an agreement." Democrats consider the entitlement programs to be the foundation of the social contract with Americans and therefore question any push for benefit cuts. Instead, they insist the programs can be strengthened through improved efficiency and other reforms, such as the $700 billion in Medicare savings under Obama's health care reform law of 2010 that Pelosi cited Thursday. After his re-election last month, Obama wants to secure increased revenue from higher taxes on the wealthy to minimize the amount of spending cuts in an overall deficit reduction package. Polls consistently show the public favors Obama's stance in the negotiations. Nearly half of Americans -- 49% -- say they approve of the president's handling of the talks, compared with 25% who say Boehner is doing a good job, according to an ABC News/Washington Post poll released Wednesday. Meanwhile, a Bloomberg National Poll indicated that nearly two-thirds of respondents, including nearly 50% of Republicans, believe Obama's re-election gave him a mandate to seek higher taxes on the wealthy. Also Wednesday, an administration official said the Business Roundtable -- an association of CEOs of major corporations -- has dropped its opposition to raising tax rates on the top two income brackets after lobbying by the White House. However, Boehner and other Republicans complain that Obama's tax stance will harm small business owners who declare their profits as personal income and therefore will get hit by the rate increase above $200,000 for individuals and $250,000 for families. "Raising tax rates will hurt small businesses at a time when we're expecting small businesses to be an engine of job growth in America," Boehner said Thursday. Asked about polling that shows most Americans favor raising rates on top income brackets, Boehner said: "Most Americans agree that spending is a bigger problem than raising taxes." Some small business owners interviewed by CNNMoney said they would continue with plans to expand even if the Obama proposal gets passed and raises their taxes. "If your business is good, you'll grow it. We'll figure out a way," said Chelsea Sloan, who started the Uptown Cheapskate retail franchise. "Business owners who say they'll stop hiring if tax rates go higher are blowing smoke." Both sides said they want a comprehensive agreement that reduces deficits and reforms the tax system. Democrats call for a two-step approach that would include Obama's tax plan and some spending cuts now, with broader tax and entitlement reform in the new Congress that convenes in January. Boehner made clear Thursday that the first step must include significant spending cuts. Meanwhile, two former Senate majority leaders told CNN on Thursday that both sides must be ready to compromise instead of sticking to party ideology. "The simplest way to put it is that we're at 24% spending, we're at 16% revenue," said Tom Daschle, the former Democratic senator from South Dakota. "We've got to bring those two closer together and that's how you get a balanced budget and ultimately that's how you get fiscal responsibility. You've got to bring those two together. You've got to raise revenue, you've got to cut spending and it can be done." To Trent Lott, the former Republican senator from Mississippi, it comes down to the principal negotiators. "There'll come a moment when the speaker is going to have to, you know, make a decision on that and the president will have to make a decision on what he's going to do in return on spending, but they need to do it in concert," Lott said. "It's like directing the orchestra. You've got to have the winds and the brass come together and they're not quite there." The House of Representatives is supposed to end its current session Friday and go home for the year, but Majority Leader Eric Cantor, R-Virginia, made clear the chamber would stay later than planned. CNN's Dana Bash, Paul Steinhauser, Caitlin Stark, Deirdre Walsh, Jessica Yellin, Ashley Killough and CNNMoney's Jose Pagliery contributed to this report.