Fiscal Cliff Looming

 

 

 

President Obama cut short his holidays to address the fiscal cliff issue which  threatens to plunge America back into recession. He has said the wealthy must pay more taxes under any political settlement to avert a looming budget crisis. He said Congress must act against the so-called fiscal cliff, a package of tax rises and spending cuts due early next year.

But in a duelling news conference, Republican House Speaker John Boehner said tax rises would not be acceptable. Budget analysts warn the US will tip into recession unless a deal is struck. Mr Obama has repeatedly called for the affluent to pay more, but such a plan is anathema to Republicans.

The fiscal cliff would see the expiry of George W Bush-era tax cuts at the end of 2012, combined with automatic, across-the-board reductions to military and domestic spending. In the East Room of the White House on Friday, Mr Obama said: "We can't just cut our way to prosperity. If we're serious about reducing the deficit, we have to combine spending cuts with revenue. And that means asking the wealthiest Americans to pay a little more in taxes."

President Obama is using the moral authority of his re-election to push his case. There is nothing new in his call for Congress to extend middle-class tax cuts. He said it repeatedly before the election.

But now he has a renewed mandate and his demand has a fresh weight behind it. He pointed out that even people who didn't vote for him told opinion pollsters that taxes should go up for the most wealthy.

The president continued: "I want to be clear. I'm not wedded to every detail of my plan. I'm open to compromise. I'm open to new ideas... but I refuse to accept any approach that isn't balanced."

He repeated his oft-stated call for tax rises on earnings over $250,000 (£157,000), while urging Congress to extend existing rates for 98% of taxpayers.
"This was a central question during the election," said Mr Obama. "It was debated over and over again. On Tuesday night, we found out that the majority of Americans agree with my approach."

He also invited Democratic and Republican leaders to the White House next week to discuss how to move forward.  A White House spokesman said afterwards the president would veto any bill extending tax cuts for those making more than $250,000.

But battle lines were drawn earlier on Friday, as Speaker Boehner restated his party's opposition to tax increases. The most powerful Republican lawmaker told a press briefing that "raising tax rates will slow down our ability to create the jobs that everyone says they want".
Mr Boehner suggested "special-interest loopholes in the tax code, both corporate and personal" could be eliminated, as he advocated "entitlement reform as well as tax reform with lower rates
"Entitlement reform" is Washington-speak for cuts to federal spending on programmes such as healthcare for the poor and elderly and Social Security pensions - cherished among Mr Obama's Democratic allies.

Mr Boehner also cited a Congressional Budget Office (CBO) report on Thursday which warned the US economy would fall back into recession if no deal were struck on the fiscal cliff.  The analysis projected that the package of tax rises and spending cuts would cut the ballooning US deficit by $503bn through to next September, but also shrink the economy by 0.5% and cost millions of jobs.

The International Monetary Fund has repeatedly warned that failure by US lawmakers to reach a deal would deepen uncertainty and anxiety over the global economy. Investor concerns over the issue have been partly blamed for two straight days of losses on financial markets this week

There has to be agreement on a plan to cut the deficit. If not, there will be serious consequences. If this fiscal bomb goes off, it is not just politicians who will be hurt. The whole US economy could collapse, and it would probably take what's left of the world economy with it.

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