'No progress' on US fiscal cliff

2012-12-27 08:17
US President Barack Obama. (File, AFP)

US President Barack Obama. (File, AFP)

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Washington - With President Barack Obama heading back to Washington, Republicans heaped pressure on Democrats on Wednesday to lay out an 11th-hour deal preventing taxes from rising for all Americans.

The president cut short his Christmas vacation in Hawaii and was to fly back to the US capital, five days after urging Congress to end a bitter deadlock over how to avoid the so-called "fiscal cliff" and its hundreds of billions of dollars in tax hikes and spending cuts in 2013.

Complicating efforts to avoid disaster, Treasury Secretary Timothy Geithner announced that the US Treasury will need to take "extraordinary measures" to postpone the day the US government could default on its liabilities.

Geithner said in a letter to Senate Majority Leader Harry Reid that the nation will reach its statutory $16.39 trillion debt limit - a ceiling imposed by Congress - on Monday, 31 December.

The measures would create about $200bn in headroom that under normal circumstances would last about two months, to the end of February.

"However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures," Geithner said.

Trading blame

Experts say a failure to strike a compromise on the matter by New Year's Eve could plunge the world's biggest economy into recession, and wrangling over the debt ceiling will only increase the uncertainty.

But members of the House and Senate have shown no signs of nearing any accord, big or small, that would stop taxes from rising and deep, mandated spending cuts from kicking in from 1 January if Congress does not act.

"I don't yet know what Senator Reid has planned," Don Stewart, deputy chief of staff to Republican Minority Leader Mitch McConnell, said on Wednesday.

"The White House hasn't reached out to us, nor have Senate Dems. They seem to be working on this on their own," Stewart said.

Democrats and Republicans traded blame last week over the failure to reach a deal and Republican House Speaker John Boehner punted to the Democrat-led Senate, asking Obama and Reid to draft legislation that could pass both houses.

Boehner insisted on Wednesday that "lines of communication remain open", but held firm that the Senate must make the next move.

Eerie calm

He suggested the chamber take up bills already passed by the House, notably a bill extending all tax breaks and another that replaces automatic spending cuts with ones that do not affect national security.

"If the Senate will not approve and send them to the president to be signed into law in their current form, they must be amended and returned to the House" for consideration, Boehner said in a statement with his Republican leadership.

"We will continue to work with our colleagues to avert the largest tax hike in American history."

As an eerie calm settled over Washington ahead of the mad dash to avoid the crisis, a senior Democratic aide said there was "no progress" to report.

"We need co-operation from Republicans to move anything, large or small," he said.

The Senate will be back in session on Thursday, giving them less than a week to work out a deal that avoids the cliff.

With the deadline fast approaching, Obama has pared back his hopes for a year-end grand bargain on taxes and substantial spending cuts as part of a 10-year deficit-cutting bill.

Compromise

Instead, he said Congress should work out a stop-gap that protects middle-class taxpayers while laying groundwork for further deficit reduction next year.

Obama successfully campaigned for re-election on the back of his support for an extension of Bush-era tax breaks for those in households earning up to $250 000 a year.

In talks with Boehner on a larger compromise, he had offered to raise that threshold to $400 000.

But with Republicans in the House majority, even if all 192 Democrats in the chamber voted for an Obama-backed plan, it would still need support from at least two dozen Republicans.

Most Republicans in Congress have signed a no-new-taxes pledge, however, and it remained unclear just how many would violate that oath in order to strike a deal.

Staunch conservatives last week revolted against Boehner's alternative proposal to prevent a 2013 tax hike on anyone making under $1m per year.

Republicans could balk at voting on any tax plan until after 1 January.

Going over the cliff would force all tax rates to rise. Instead of actively voting to hike rates on the wealthy, Republicans could then turn around and vote to reduce middle-class taxes to pre-2013 rates.

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