US teeters on edge of fiscal cliff
This is hardly surprising given that middle-class families will be forced to pay an average of $2,200 more in taxes next year in the absence of a deal.
The mood among Republican supporters has also moved sharply amid fears that the US economy will move from a position of recovery to recession.
More than three-quarters of Americans, including 61 per cent of Republicans, said they would accept higher taxes on the rich to avoid the cliff, this week’s WSJ/NBC poll found.
“There is a growing group of folks looking at this and realising that we don’t have a lot of cards as it relates to the tax issue before year end,” Republican senator Bob Corker told Fox News earlier this week.
Wall Street rowed into the debate this week when Jamie Dimon, the chief executive of US investment bank JP Morgan, said the US economy could be booming “in a couple of months” if a deal were reached.
The onset of the tax increases and spending cuts – and the accompanying squabbling between Congress and the White House to avoid it – is seen more as a political cliff and a fiscal slope given that most changes will arrive gradually next year.
“This image of a cliff is sort of a misnomer; it is more of a political term than an economic term,” said US economist Steven Seelig, a former senior International Monetary Fund official and a board member of the National Asset Management Agency, Ireland’s “bad bank”.
“If the Republicans do nothing, there is going to be a big increase in tax rates and they will fall off the cliff, more than anyone else. There is an argument that Obama should hang tough as Republicans will lose out.”
Talks between the Democratic president and a Republican Congress are dead-locked and could drag on past Christmas as the GOP must also grapple with internal strife among congressional Republicans, a factor that is weakening Boehner’s hand.
Little has been conceded in public about any shift in opposing negotiating positions and the differences on the surface appear to be stark.
Boehner, an Ohio Republican, has said Obama’s latest proposal on the table for $1.4 trillion in new tax revenues did not meet his promise for a balanced approach to tackling the federal deficit and that it had no chance of passing Congress.
“I remain the most optimistic person in this town, but we’ve got some serious differences,” he told reporters after meeting Republicans in Congress, and warned that negotiations could run right up to the end-of-year fiscal deadline.
“Keep your Christmas decorations up and make no plans” was the advice that Boehner gave Republicans in a private meeting, Republican Congressman John Shimkus from Illinois told the Washington press.
The White House is not backing down on Obama’s demand that Republicans cede to his proposal for new revenue being raised through tax increases on America’s richest 2 per cent. Obama wants the top rate of income tax to increase to 39 per cent, while Republicans want the 35 per cent rate inherited from the Bush era extended.
Boehner has rejected a White House demand for $1.4 trillion in higher taxes over a decade, down from its initial proposal for $1.6 trillion; he instead wants $800 billion in revenue to come from tax reforms.