US President Barack Obama and US House of Representatives Speaker John Boehner are signaling they are open to some compromise on taxes and spending to prevent more financial pain in the new year, but the two sides are digging in on raising taxes for wealthier Americans.
Obama declared on Friday he was not “wedded to every detail” of his approach to prevent a looming set of automatic tax hikes and budget cuts that threaten to erase millions of jobs and push the US back into an economic recession.
However, the president insisted his re-election gave him a mandate to raise taxes on wealthier Americans.
The changes, widely characterized as a dangerous “fiscal cliff” set to kick in on Jan. 1, include a series of expiring tax cuts that were approved in the administration of former US president George W. Bush. The other half of the problem is a set of punitive across-the-board spending cuts, looming only because a partisan panel of lawmakers failed to reach a debt deal.
Put together, they could mean the loss of about 3 million jobs.
“The majority of Americans agree with my approach,” Obama said, brimming with apparent confidence in his first White House statement since securing a second term.
Trouble is, the Republicans who run the House plainly do not agree with his plans. Speaker John Boehner insisted that raising tax rates as Obama wants “will destroy jobs in America.”
So began the fiscal cliff political maneuvering that will determine which elected power center — the White House or the House — bends more on its promises to voters.
With an exhausting presidential race barely history, Washington was back quickly to governing on deadline, with agreement on a crucial goal, but divisions on how to get there.
Obama invited the top four leaders of Congress to the White House next week for talks, right before he departs on a trip to Asia.
World stocks mostly fell on Friday as fears persisted over the fiscal cliff that is seen as a big threat to the economic recovery.
On Wall Street, stocks managed a small rally. The Dow was up about 30 points when Boehner started talking and about 80 points shortly after.
Then Obama said he would not accept any approach to federal deficit reduction that does not ask the wealthy to pay more in taxes. A spokesman later said Obama would veto legislation extending tax cuts for families making US$250,000 or more annually.
The Congressional Budget Office analysis says the looming combination of automatic tax increases and spending cuts would cut the massive US deficit by US$503 billion through next September, but that the fiscal austerity would cause the economy to shrink by 0.5 percent next year and cost millions of jobs.
The new study estimates that the nation’s GDP would grow by 2.2 percent next year if all Bush-era tax rates were extended and would expand by almost 3 percent if Obama’s 2 percentage point payroll tax cut and current jobless benefits for the long-term unemployed were extended as well.
About 60 percent of voters said in exit polls on Tuesday that taxes should increase, either for everyone or those making more than US$250,000. Left unsaid by Obama was that even more voters opposed raising taxes to help cut the deficit.
Since the election, Boehner and Obama have both responded to the reality that they need each other.
Compromise has become mandatory if the two leaders are to avoid economic harm and the wrath of a public sick of government dysfunction.
Obama says he is willing to talk about changes to government-funded medical insurance for the poor and elderly, earning him the ire of the left.
Boehner says he will accept raising tax revenue and not just slashing spending, although he insists it must be done by reworking the tax code, not raising rates. The framework, at least, is there for a broad deal on taxes.