US Republicans re-think higher tax rates

2012-12-10 21:00
James Dresch of MND Partners Incorporated works on the floor of the New York Stock Exchange. (File, AP)

James Dresch of MND Partners Incorporated works on the floor of the New York Stock Exchange. (File, AP)

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Washington - President Barack Obama and the top Republican in Congress have opened face-to-face talks with just three weeks remaining before the deadline to back away from the "fiscal cliff" - across-the-board tax increases and dramatic spending cuts that could push the fragile US economy back into recession.

The White House meeting Sunday was the first private negotiation session between Obama and House Speaker John Boehner since the 6 November election and could mark a turning point in the stalemate over the US budget crisis.

It coincides with moves by growing numbers of rank-and-file Republicans toward with what they called pragmatic ideas to break the stalemate. Obama and Boehner agreed not to release details of their weekend conversation, but aides said it proved lines of communication remain open.

Seeking again to rally popular support for his position, Obama was heading to Michigan on Monday to speak to auto workers at a plant outside Detroit. It's the latest in a string of campaign-style appearances Obama has held in recent weeks to build on his campaign promise to tackle the budget deficit by raising tax rates on the richest Americans.

The president's message on Monday will be that the economy is rebounding and Congress should not risk that progress to save tax cuts for the rich.

Jeff Immelt, GE's chief executive and head of a presidential advisory council on competitiveness, said a deal needs to be made now, and increased revenue is going to have to be part of it.

"The millions of people that work for us, their lives are in flux. And this is incredibly critical we get this done now," Immelt said in remarks aired on Monday on CBS.

The "fiscal cliff" refers to rate increases that would affect every worker who pays federal taxes, as well as spending cuts that would begin to bite defence and domestic programmes alike. Economists say the combination carries the risk of a new recession at a time the economy is still struggling to recover fully from the worst slowdown in decades.

The country faces the fiscal cliff because tax rate cuts that were put in place during the administration of former President George W Bush expire at the end of the year. Obama campaigned during his successful run for a second term on keeping the cuts in place for all but the top 2% of US earners. 

Inability to agree

Republicans want to find additional government income by cutting back on tax loopholes and deductions while leaving the tax rates unchanged.

The pending across-the-board reductions in government spending, impacting everything from social programmes to the military, were put in place last year as an incentive to both parties to find spending reductions. That legislation grew out of the two parties' inability in 2011 to agree to a tax and spending program that would have taken a big bite out of the deficit.

Compounding the likely devastating effects of failure to agree on a means of avoiding the fiscal cliff will be the coincidental expiration of extended government benefits for the long-term unemployed and the expiration of temporary cuts in the payroll tax that funds the government's Social Security pension programme.

The White House meeting suggests there may be pressure on Boehner to side with a number of Republicans who think the party should change how it approaches negotiations with Obama after the bruising national election that left Democrats in charge of the White House and Senate.

"There is a growing group of folks looking at this and realizing that we don't have a lot of cards as it relates to the tax issue before year end," Republican Senator Bob Corker told Fox News.

If Republicans agree to Obama's plan to increase tax rates on the top 2% of Americans, Corker said, "the focus then shifts to entitlements, and maybe it puts us in a place where we actually can do something that really saves the nation."

Conservative stalwart Senator Tom Coburn had floated a similar idea, and Representative Tom Cole, another Republican, has said Obama and Boehner could at least agree not to raise tax rates on the majority of Americans and negotiate the rates of top earners later.

"It's not waving a white flag to recognize political reality," Cole said on CNN.

Tax cut

But such ideas face an uphill battle. Many House Republicans say they will not vote for tax rate hikes under any circumstances, fearing the Republican leadership could lose leverage in the negotiations if it raises the rate on upper-income earners without getting anything substantial in return like entitlement reform.

They have targeted Social Security and Medicare, the expensive health insurance programme for older Americans.

Democratic leaders have suggested they are unwilling to do any work on those spending programmes in the three weeks left before the fiscal cliff would be triggered.

"I just don't think we can do it in a matter of days here before the end of the year," Senate Democratic Whip Dick Durbin said of Medicare reform, in an interview Sunday on NBC television.

"We need to address that in a thoughtful way through the committee structure after the first of the year," Durbin added.

Obama's plan would raise $1.6 trillion in revenue over 10 years, partly by letting decade-old tax cuts on the country's highest earners expire at the end of the year. He would continue the Bush-era tax cuts for everyone except individuals earning more than $200 000 and couples making more than $250 000. The highest rates on top-paid Americans would rise from 33% and 35% to 36% and 39.6%, respectively.

Boehner has offered $800bn in new revenues to be raised by reducing or eliminating unspecified tax breaks on upper-income earners. The Republican plan also would cut spending by $1.4 trillion, including by trimming annual increases in Social Security payments and raising the eligibility age for Medicare from 65 to 67.

- AP

Read more on:    barack obama  |  us
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