News24

Obama tough on fiscal cliff

2012-12-06 22:12

Washington - President Barack Obama and Republicans crept closer to negotiations on avoiding a recession-threatening package of automatic tax increases and spending cuts, but the White House reaffirmed it would not budge on demands for higher taxes on the wealthy.

With a new AP-GFK poll showing clear support for Obama's position and dwindling backing for cutting government services to curb the climbing US budget deficit, the president and House of Representatives Speaker John Boehner spoke by telephone on Wednesday for the first time in days about a way to avoid the so-called fiscal cliff which would occur on 1 January.

The telephone contact, disclosed by a Boehner spokesperson, raises the possibility that negotiations could soon resume on heading off what some economists warn could be a serious blow to an economy still recovering from the Great Recession.

So far, Republican leaders have said they would only agree to higher tax revenues by closing loopholes or reducing tax breaks, not by raising rates as demanded by Obama. The opposition has struggled, however, to remain united and find its footing in talks with a president emboldened by his November election victory and unified congressional Democrats.

While insisting that tax rates go up on the top 2% of American earners, Obama, too, has called for government spending cuts but by less than the Republicans want.

Obama, addressing business leaders on Wednesday, said the White House and Republicans could reach an agreement "in about a week" if the Republicans drop their opposition to raising taxes on families making more than $250 000 a year.

"If we can get the leadership on the Republican side to take that framework, to acknowledge that reality, than the numbers actually aren't that far apart," Obama said.

Administration officials are hardening their warnings that Obama is willing to risk going over the cliff. Treasury Secretary Timothy Geithner said on Wednesday that the Obama administration is "absolutely" ready for that risky step.

Progress inevitable

Geithner said in an interview on CNBC the administration thinks budget deficits are so large that they can't be closed without boosting tax rates on the wealthiest 2% of Americans. He also said that the administration would reject a budget plan that didn't include an increase in the federal borrowing limit, which is expected to expire early next year.

However, Geithner said he still thinks progress is being made in the budget negotiations and that the outlines of an agreement are becoming clearer.

"They look inevitable," he said.

Speaking to business chieftains Wednesday, Obama warned Republicans not to inject the threat of a government default into negotiations over the fiscal cliff as a way of extracting concessions on spending cuts. "It's not a game I will play," he said, recalling the brinkmanship of last year in which a budget standoff pushed the Treasury to the edge of a first-ever default and led to a downgrade of the US credit rating.

While saying he is willing to accept some reductions in government programs such as Medicare, the highly popular federal health insurance programmes for older Americans, he flatly rejects Republican contentions that they can raise about $800bn in additional government revenue over a decade by closing loopholes and narrowing tax deductions on the wealthy, rather than raising income tax rates.

The opposition argues increasing rates from 35% to 39.6% as Obama wants would impose a particularly harmful impact on the economy and job creation at a time when the country is still struggling to recover fully from the deepest recession in decades.

The White House has ridiculed the Republican plan as "magic beans and fairy dust."