Fiscal cliff talks stall. Will a deal get done by Christmas?
Fiscal cliff deadline is a month away, but Republicans and Democrats are blaming each other for the inability to get a deal done that would prevent automatic spending cuts. The uncertainlty over the fiscal cliff talks is already having a financial impact, sending the stock market on a roller coaster ride.
Washington politicians have one month to step back from the so-called "fiscal cliff," across-the-board tax hikes and austerity-driven spending cuts likely to return the country to recession, and a top Republican declares there has been no real progress after two weeks of talks between President Barack Obama and a divided Congress.
The president has called for settling the issue before Christmas and heads Friday to Pennsylvania to campaign for his demand that any deal include higher tax rates on U.S. couples earning more than $250,000 a year. He also wants to keep in place the smaller tax burden that lower income earners have had for about a decade.
But Republican House Speaker John Boehner, after receiving details of the Obama plan in a private meeting Thursday with Treasury Secretary Tim Geithner, said "no substantive progress has been made" in negotiations since Congress returned to work after the Nov. 6 election.
"Unfortunately, many Democrats continue to rule out sensible spending cuts that must be part of any significant agreement that will reduce our deficit," Boehner declared.
Democrats replied that any delay was the fault of Republicans who refuse to accept Obama's call to raise tax rates on the richest Americans.
The austerity measures that automatically would take effect Jan. 1 unless a deal is made is the looming punishment for Washington's inability, or unwillingness, in recent years to deal decisively with the country's spending far more than it has been taking in.
Politicians in both major U.S. parties are showing no signs of giving up on the deep partisan divisions that have crippled legislative action in Washington despite Obama's strong victory for a second White House term.
The uncertainty over whether the U.S. can resolve the critical budget deadlock is beginning to increase jitters in stock markets in Europe, where eurozone countries have already returned to recessionary economies.
European investor sentiment had been buoyed this week by upbeat reports on the U.S. economy, including economic growth and consumer confidence. But markets failed to sustain their rally Friday as trading became increasingly focused on the difficult talks between the White House and Congress.
Economists warn that sending the U.S. economy over the "fiscal cliff" would trigger a recession and cause a spike in already stubbornly high unemployment.
To avoid the danger, Obama and Congress are hoping to devise a plan that can reduce future deficits by as much as $4 trillion in a decade, cancel the tax increases and automatic spending cuts and expand the government's ability to borrow beyond the current limit of $16.4 trillion.
Officials on Thursday said the White House is seeking $1.6 trillion in higher taxes over a decade and an immediate infusion of money to aid the jobless and help hard-pressed homeowners.
In exchange, the officials said, Obama would support an unspecified amount of spending cuts this year, to be followed by legislation in 2013 producing savings of as much as $400 billion from popular benefit programs over a decade.
In political terms, the White House proposal are nearly opposite what Republicans earlier lay down as their first offer, including a permanent extension of income tax cuts at all levels.
Senate Majority Leader Harry Reid told reporters, "We're still waiting for a serious offer from Republicans."
The White House also circulated a memo that said closing tax loopholes and limiting tax deductions — a preferred Republican alternative to Obama's call to raise high-end tax rates — would be likely to depress charitable donations and wind up leading to a middle-class tax increase in the near future.