Obama warns congressional leaders as fiscal cliff looms

Obama warns congressional leaders as fiscal cliff looms

Barack Obama issued a stern summons to congressional leaders to approve legislation before the end of the year to prevent tax increases on millions of middle-class Americans and prevent long-term unemployment benefits for the jobless expiring.

The president’s remarks capped the end of yet another frustrating week during which his Democrats and opposition Republicans, led by House of Representatives speaker John Boehner, were unable to agree on avoiding the recession-threatening “fiscal cliff”.

On Thursday Mr Boehner signalled that he was still open to talks with Mr Obama but was at a loss over how automatic tax increases and spending cuts would be avoided.

“How we get there, God only knows,” he said.

Economists fear the combination of across-the-board tax increases and steep spending cuts due to kick in on January 1 could deliver a blow to the US economy.

The president spoke at the end of a day in which stocks around the world tumbled and congressional leaders squabbled as the fiscal cliff drew implacably closer.

Mr Obama insisted that he still wanted a Bill that requires the well-to-do to pay more. “Everybody’s got to give a little bit in a sensible way” to prevent the economy from pitching over a fiscal cliff, he said.

He spoke after talking by phone with Mr Boehner and meeting Senate majority leader Harry Reid.

“I still think we can get it done,” Mr Obama said as he struggled to pick up the pieces of weeks of failed negotiations and political manoeuvring.

Earlier this week Mr Boehner tried to come up with his own deficit reduction plan to counter Mr Obama’s, but was forced to cancel a vote on it on Thursday after it became clear that he did not have enough support from members of his party.

He had proposed letting taxes rise only on households making one million dollars or more a year, but some Republicans, especially conservatives and members of the small-government tea party movement, reject any higher taxes.

Mr Obama’s latest proposal was pushing for higher tax rates for Americans earning more than $400,000.

Mr Boehner’s plan, introduced abruptly this week, had been unlikely to pass the Democrat-controlled Senate and Mr Obama had threatened to veto it. But Mr Boehner had hoped it would rally Republican troops and strengthen his position in talks with Mr Obama on how to make up for the country’s chronic deficit spending.

Instead, the withdrawal of his plan was an embarrassment and a major personal defeat. It also added uncertainty to prospects for any bill clearing the House. Any compromise reached with Mr Obama would almost certainly include terms even less appealing to Republicans than the plan Mr Boehner had put forward.

“We had a number of our members who didn’t want to be perceived as raising taxes,’ Mr Boehner said yesterday.

Mr Boehner may now have to rely on the support of the House’s Democrat minority if any plan is to get through the chamber. That could damage his standing within his party and affect his prospects for retaining the speaker’s position when the newly-elected Congress takes office in January.

The White House said Mr Obama would press ahead with Congress on a plan to avoid the fiscal cliff.

But Thursday’s events left little time for a deal. The House will not meet again until after Christmas, if then, and the Senate was expected to meet briefly yesterday, then not reconvene until next Thursday.

The question of raising taxes on the wealthiest Americans has been the biggest sticking point in talks. Tax cuts approved during George Bush’s presidency are set to expire at the end of the year.

Mr Obama campaigned for re-election calling for the cuts to be extended for anyone earning less than $250,000. Republicans opposed taxes going up for anyone.

Mr Boehner and Mr Obama had seemed to be making progress in negotiations – Mr Boehner’s plan proposed allowing taxes go up for those making one million dollars or more; Mr Obama had offered a compromise $400,000 level.

Both men are separated by relatively miniscule dollar differences by Washington standards.

Mr Obama wants to raise taxes by about $20bn a year more than Mr Boehner. The two men differ over spending cuts by roughly the same amount.

By almost any measure, $20bn is real money. Yet compared to the $2.6 trillion the government expects to collect next year and the $3.6 trillion it plans to spend, $20bn barely registers – less than 1% of what the government is already on track to raise and spend.

Relative to the US economy, which should weigh in at well over $15 trillion next year, $20bn is even smaller.

“The policy implication is very slight,” Robert Bixby, executive director of the Concord Coalition, a non-partisan anti-deficit group, said of the gap. “It’s not worth the price of not getting a deal.”

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