US budget deal elusive as deadline looms large

US President Barack Obama and congressional leaders met yesterday for the first time since November, with no sign of progress in resolving their differences over the federal budget and expectations low for a deal before January 1st.

Instead, members of Congress are increasingly looking at the period after the December 31st deadline to come up with a retroactive fix to avoid steep tax rises and sharp spending cuts that economists have said could plunge the country into another recession.

Politically palatable

With taxes on Americans set to rise when rates established under former president George W Bush expire on December 31st, lawmakers would be able to come back in January and take a more politically palatable vote to cut some of the tax rates.

The new factor in the mix was involvement by Republican Senate Minority Leader Mitch McConnell, who spoke to Mr Obama this week and expects a new proposal from the president which he would consider.

The New York Times reported congressional officials saying staff-level talks between the White House and the Senate Republican leader revolve around a deal that would extend expiring Bush income tax cuts up to $400,000 (€303,000) in income.

Some spending cuts would pay for a provision putting off a sudden cut in payments to medical providers treating Medicare patients. The deal would also prevent an expansion of the alternative minimum tax to keep it from hitting more of the middle class. It would extend a raft of already expired business tax cuts, like the research and development credit, and would renew tax cuts for the working poor and the middle class included in the 2009 stimulus law. The estate tax would stay at existing levels.

It would not stop automatic spending cuts from hitting military and domestic programmes beginning on Wednesday, nor would it raise the statutory borrowing limit, which will be reached on Monday. Congressional aides said those issues would be dealt with early next year in yet another showdown.

White House officials denied that any such offer was developing and said that the president was sticking with his insistence that household income only up to $250,000 would be protected from tax increases.

Investors fretted

US stocks fell yesterday, with the Dow Jones industrial average dropping 0.48 per cent as investors fretted about the lack of certainty.

“Regardless of whether the government resolves the issues now, any deal can easily be retroactive.” said Richard Weiss, senior manager at American Century Investments. (Reuters/New York Times)