US Senate leaders sought a last-minute compromise to avoid middle class tax increases and possibly prevent deep spending cuts at the dawn of the new year as US President Barack Obama warned that failure could threaten the nation’s economic recovery.
The US faces the so-called “fiscal cliff” next month because tax rate cuts dating back to former US president George W. Bush’s tenure expire today. 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 ways to cut spending. That solution grew out of the two parties’ inability to agree to a grand bargain that would have taken a big bite out of the deficit.
Unless Obama and US Congress act to stop them, about US$536 billion in tax increases, touching nearly all Americans, will begin to take effect next month. That will be coupled with about US$110 billion in spending cuts, about 8 percent of the annual budgets for most federal departments. Economists predict that if allowed to unfold over the next year, this double whammy would result in a big jump in unemployment, financial market turmoil and a slide back into recession.
Obama chastised lawmakers on Saturday in his weekly radio and Internet address for waiting until the last minute to try and avoid a fiscal cliff, yet said there was still time for an agreement.
“We cannot let Washington politics get in the way of America’s progress,” he said as the negotiations unfolded.
The US “can’t afford a politically self-inflicted wound to our economy,” he added.
Obama held an hour-long, high-stakes meeting with Congress leaders on Friday afternoon in a last-ditch effort to find a path to averting the automatic austerity measures that begin to take effect on Tuesday. Senate Majority Leader Harry Reid began racing against the clock for a bipartisan bargain. The leaders could present legislation to senators as early as yesterday, with a vote possible then or today.
For all the recent expressions of urgency, bargaining took place by phone, e-mail and paper in a Capitol nearly empty except for tourists. Alone among top lawmakers, McConnell spent the day in his office.
In the Republicans’ weekly address, Senator Roy Blunt of Missouri cited a readiness to compromise.
“Divided government is a good time to solve hard problems — and in the next few days, leaders in Washington have an important responsibility to work together and do just that,” he said.
Even so, there was no guarantee of success and a dispute over the federal tax on large estates emerged as yet another key sticking point alongside personal income tax rates.
In a blunt challenge to Republicans, Obama said that barring a bipartisan agreement, he expected both houses of Congress to vote on his own proposal to block tax increases on all but the wealthy and simultaneously preserve expiring long-term unemployment benefits.
Political calculations mattered as much as deep-seated differences over the issues, as divided government struggled with its first big challenge since the elections last month.
US House of Representatives Speaker John Boehner remained at arms-length, juggling a desire to avoid the fiscal cliff with his goal of winning another term as speaker when a new Congress convenes on Thursday. Any compromise legislation is certain to include higher tax rates on the wealthy, and rank-and-file House Republicans rejected the idea when he presented it to them as part of a final attempt to strike a more sweeping agreement with Obama.