Obama, Boehner discuss 'fiscal cliff' in telephone call as tax hikes and spending cuts loom

WASHINGTON – President Barack Obama and House of Representatives Speaker John Boehner spoke for the first time in days Wednesday in a telephone discussion over the fiscal cliff, following several days of political sparring over steps to prevent a looming year-end series of automatic tax increases and spending cuts.

The call, disclosed by a Boehner spokesman, raises the possibility that negotiations will soon resume between the White House and congressional leaders to head off what some economists warn could be a serious blow to an economy still recovering from the Great Recession. It came on the same day a new poll showed support for the re-elected Obama, who is demanding that Republicans agree to raise tax rates on upper incomes as part of a deal to rein in future deficits.

Republican leaders say they will agree to higher revenue but only by closing loopholes or reducing tax breaks rather than raising rates. The opposition has struggled to remain united and find its footing in talks with a president emboldened by his November election victory and unified congressional Democrats.

An AP-GfK poll showed Wednesday that there is clear support for Obama’s position, as well as dwindling support for cutting government services as the best way to curb budget deficits. The findings seemed to strengthen Obama’s hand in his fiscal cliff negotiations with Republicans. The president also wants to cut spending, but by less than the Republicans want.

In the poll, 48 per cent want tax cuts on income exceeding $250,000 to expire in January while continuing them for everyone else. Just 32 per cent want to renew the tax cuts for everyone. More people want to cut government services than raise taxes to reduce federal deficits, but the number with that preference has been dropping since last year.

White House advisers say Obama wants to avoid going into next year without a tax and spending deal, a scenario they say would hurt the economy. Obama, addressing business leaders 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.

But with few public signs that Republicans are close to taking that step, administration officials are hardening their warnings that Obama is willing to risk going over the cliff. Treasury Secretary Timothy Geithner said Wednesday that the Obama administration is “absolutely” ready for that risky step.

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 per cent 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.

Among the Republicans, Sen. Tom Coburn became the latest to break ranks and say he could support Obama’s demand for an increase in tax rates at upper incomes as part of a comprehensive plan to cut federal deficits.

A handful of other Republicans in both houses have said in recent days they could support raising the top tax rates. In the House, conservatives say they suspect Boehner let it be known he wouldn’t mind the discussion, even though he made a case in a closed-door meeting of the rank and file last week that raising rates would be worse for the economy than raising revenue by closing tax loopholes.

House Majority Leader Eric Cantor said Republicans want to “sit down with the president. We want to talk specifics.” He noted that the Republicans had made a compromise offer earlier in the week and the White House had rejected it.

Eventually, Democrats acknowledge, there will be compromise talks, possibly quite soon, toward an agreement that raises revenues and reins in the federal Medicare health care program for the elderly and other government benefit programs, and perhaps raises the government’s $16.4 trillion borrowing limit.

For now, the demonstration of presidential inflexibility appears designed to show that, unlike two years ago, Obama will refuse to sign legislation extending Bush-era top-rate tax cuts and will allow public and private pressure to build on the Republican leadership.

So far, the Republicans have offered to support non-specified increases to raise tax revenues by $800 billion over a decade but has rejected Obama’s demand to let the top income tax rate rise from 35 per cent to 39.6 per cent.

The “fiscal cliff,” with its year-end deadline, refers to increases that would affect every worker who pays federal income tax, as well as spending cuts that would begin to bite defence and domestic programs alike. Economists in and out of government 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 Dec. 31 deadline dates back to an August 2011 partisan standoff that led the Treasury to the brink of America’s first-ever default and prompted Standard & Poor’s to reduce the rating for government bonds.

Avoiding that crisis led directly to the current standoff, since part of the compromise then was to set in motion the spending cuts that Obama and Congress are now trying to avoid.

Democratic Sen. Chuck Schumer, taunted the Republican leaders of the House. They are “like generals, hunkered away in a bunker, who don’t realize that their army in the field has already laid down its arms,” he said.

House Republicans opened the week by proposing a deficit reduction plan that includes raising $800 billion in higher revenue and curtailing cost-of-living increases for Social Security pensions and other government benefit programs as part of a plan to cut deficits by $2.2 trillion over a decade.

In addition, they recommended raising the age of eligibility for Medicare beginning in a decade, a step that generates no savings in the next 10 years but makes longer-term changes that would strengthen the program’s financial foundation.

The White House ridiculed that plan as “magic beans and fairy dust,” saying taxes must rise on families earning $250,000 or more to generate enough revenue to deal with the fiscal crisis.


Associated Press writers David Espo, Martin Crutsinger, Jim Kuhnhenn and Andrew Taylor contributed to this story.