WASHINGTON – Negotiations to avoid an economy-rattling “fiscal cliff” appeared at a standstill, with Republicans pressing President Barack Obama to name specific spending cuts he will support and the White House insisting Republicans agree explicitly to raise tax rates on upper incomes.
At a campaign-style event Monday, Obama spoke to workers at a diesel engine plant in Michigan to drum up grass-roots support for his promise to raise taxes on wealthy Americans as part of his plan for reducing the government deficit.
His trip to the heartland of the U.S. auto industry came a day after he and House Speaker John Boehner met one-on-one for the first time to discuss ways to avert the “fiscal cliff.” That has become the shorthand name for an economically deadly combination of across-the-board tax increases and dramatic spending cuts that, without an agreement between the White House and Congress, would hit Americans on Jan. 1 and could push the fragile U.S. economy back into recession.
Negotiations on a plan for avoiding that scenario have turned into a major postelection showdown between opposing sides in a divided government.
“We continue to wait for the president to identify the spending cuts he’s willing to make as part of the ‘balanced’ approach he promised the American people,'” said a written statement from Boehner’s office.
Many Republicans agree that Obama and the Democrats hold most of the political leverage, given the president’s re-election more than a month ago after a campaign in which he said the wealthy should pay more in taxes. Obama wants to boost the tax rate on individuals earning more than $200,000 a year and for couples with annual income above $250,000.
If anything, the president has toughened his demands in recent days, insisting not only that tax rates must rise, but also that Congress give him and future presidents the authority to raise the government’s borrowing limit without prior approval by lawmakers.
Boehner, while claiming his own election mandate for the Republican majority in the House, said within a few days of the voting he was prepared to buck many in his party and support additional tax revenue as part of a fiscal cliff agreement.
The Ohio Republican has said repeatedly he opposes Obama’s plan to raise tax rates for anyone, adding that he prefers to raise revenue by closing loopholes. Yet he has not yet ruled out giving the president his way, and some Republicans have said they are prepared to do so — encouraging Democrats to say they anticipate the speaker will eventually yield on the point.
White House Press Secretary Jay Carney told reporters as Obama went to Michigan that “the president believes that a deal is possible. It requires acceptance and acknowledgement in a concrete way by Republicans that the top 2 per cent will see an increase in their rates.”
In his remarks at the Daimler Detroit Diesel Plant, Obama said the Democrats would “make some tough spending cuts on things that we don’t need” as part of his budget plans, although he didn’t mention any of them by name.
The White House meeting Sunday was the first private negotiation session between Obama and Boehner since the Nov. 6 election. Obama and Boehner agreed not to release details of their weekend conversation, but aides said it proved lines of communication remain open.
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. The pending across-the-board reductions in government spending, which will slice money out of everything from social programs 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 program.
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 programs 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.
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. The highest rates on top-paid Americans would rise from 33 per cent and 35 per cent to 36 per cent and 39.6 per cent, respectively.
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.