Rallying Support for Fiscal Cliff Plan

 

President Obama is launching a week of public outreach in pressing his case for tax rises on the wealthy as the so-called fiscal cliff looms. Mr Obama met business leaders at the White House on Tuesday and will meet  members of middle-class families on Wednesday.

He wants Republicans to accept tax increases on the wealthy, while extending tax cuts for families earning $250,000  or less.

The fiscal cliff, a package of spending cuts and tax rises, hits on 1 January.

What is the fiscal cliff?

• Under a deal reached last year between President Obama and the Republican-controlled Congress, existing stimulus measures - mostly tax cuts - will expire on 1 January 2013
• Cuts to defence, education and other government spending will then automatically come into force - the "fiscal cliff" - unless Congress acts
• The economy does not have the momentum to absorb the shock from going over the fiscal cliff without going into recession

The measures, which would suck about $600bn out of the economy, were intentionally engineered as part of a 2011 compromise between Mr Obama and congressional Republicans. Negotiators then hoped it would spur the two sides to reach a long-term solution to the US budget deficit.

It is highly unlikely the Republicans will give the president what he wants. If they agree to "middle-class tax cuts", the fiscal cliff would still loom. It is true the drop off the edge would become a little shorter, and a little less painful, but it would still hurt a lot and they would have agreed to hand over a major bargaining chip without getting anything in return.

 

The President is playing hardball and continuing to represent the Republicans as sympathizing only with the wealthy. It is hard to see how this makes it any easier to get an agreement in the next few weeks. But it matters because if he or the Republicans do misjudge their brinkmanship, it won't be just them who tumble off the edge - they could take the rest of us with them. A failure to step back from the fiscal cliff could help plunge the world back into recession, the OECD, which represents the world's richest nations, warned on Tuesday.

With tax cuts passed under President George W Bush set to expire on 1 January, the White House says Mr Obama will not sign any deal which extends that measure for the wealthiest Americans.
John Boehner, the top Republican in Congress, has said he would consider increasing tax revenue by closing loopholes, though he remains opposed to raising taxes.

The House of Representatives Speaker has said such a strategy would hit small businesses and hold back economic growth. Republicans instead want to see cuts to federal programmes that have strained the US budget, adding to the deficit because of the increasing number of participants and rising costs.

In recent days, however, several Republicans have shown willingness to countenance tax increases, including prominent Republican Senators Lindsey Graham, Bob Corker and Saxby Chambliss along with Representative Peter King.

Grover Norquist, a powerful anti-tax lobbyist, acknowledged on Monday that those Republicans were having "impure thoughts".