Economy sways on ‘fiscal cliff’
Lawmakers yesterday gave themselves a last chance to prevent the United States from plunging off a ‘‘fiscal cliff’’ by setting up a late session in Congress a day before taxes are due to rise for most working Americans.
Republican leaders in the House of Representatives told their members to be back in Washington from the Christmas holiday break on Monday ( NZ time) in case they need to vote on budget measures.
That leaves the door open to a last-minute solution to avert big tax rises due to kick in on January 1 and deep, automatic government spending cuts set to begin on January 2 – together worth US$600 billion – that could push the United States back into recession.
But the two political parties remained far apart, particularly over plans to increase taxes on the wealthiest Americans to help close the US budget deficit.
The coming days are likely to see either intense bargaining over numbers, or political theatre as each side attempts to avoid blame if a deal looks unlikely.
The talks could go down to the wire on New Year’s Eve.
‘‘Hopefully, there is still time for an agreement of some kind that saves the taxpayers from a wholly preventable economic crisis,’’ Mitch McConnell, the top Republican in the Democratic-controlled Senate, said on the Senate floor.
McConnell said he was willing to look at any plan by President Barack Obama to avoid the fiscal cliff and a Senate aide said congressional leaders could hold talks with the president today.
The rhetoric was still harsh yesterday after months of wrangling – much of it along ideological lines – over whether to raise taxes and by how much, as well as how to cut back on government spending.
Senate Majority Leader Harry Reid, the top Democrat in Congress, accused Republican House Speaker John Boehner of running a ‘‘dictatorship’’ by refusing to allow bills he did not like on to the floor of the chamber.
‘‘It’s being operated with a dictatorship of the speaker, not allowing a vast majority of the House of Representatives to get what they want,’’ Reid told the Senate.
Reid urged the Republicans who control the House to prevent the worst of the fiscal shock by getting behind a Senate bill to extend existing tax cuts for all except those households earning more than US$250,000 a year.
US stocks sharply cut losses after news of the House reconvening as investors clung to hopes of an 11th-hour deal.
Even a partial agreement on taxes that would leave tougher issues like entitlement reform and the debt ceiling until later could be enough to keep markets calm.
‘‘I’m not convinced it will result in a deal but you could get enough concessions by both parties to at least avoid the immediacy of going over the cliff,’’ said investment officer Randy Bateman.
Obama arrived back at the White House yesterday from a brief vacation in Hawaii that he cut short to resume stalled negotiations with Congress.
He is likely to meet the toughest resistance from Republicans in the House, where a group of several dozen fiscal conservatives oppose any tax increases at all.
Strictly speaking, the fiscal cliff measures begin on January 1 when tax rates go up but the House might stay in session until the following day if an agreement is being worked out.
‘‘This January 1 deadline is a little artificial,’’ said Republican representative Andy Harris.
‘‘We can do everything retroactively. We have to get it right, not get it quickly.’’
Another component of the ‘‘fiscal cliff’’ – US$109b in automatic spending cuts to military and domestic programmes – is set to kick in on January 2.
The House and Senate passed bills months ago reflecting their own sharply divergent positions on the expiring low tax rates, which went into effect during the administration of former Republican president George W Bush.
Democrats want to allow the tax cuts to expire on the wealthiest Americans and leave them in place for everyone else.
Republicans want to extend the tax cuts for everyone.
In another sign that Americans are increasingly worrying about their finances as Washington fails to address the budget crisis, consumer confidence fell to a fourmonth low in December.
The fiscal wrangling in Congress sapped what had been a growing sense of optimism about the economy, a report released yesterday showed.
Americans blame Republicans in Congress more than congressional Democrats or Obama for the crisis, a Reuters/Ipsos poll showed.
When asked who they held more responsible for the ‘‘fiscal cliff’’ situation, 27 per cent blamed Republicans in Congress, 16 per cent blamed Obama and 6 per cent pointed to Democrats in Congress.
The largest percentage – 31 per cent – blamed ‘‘all of the above’’.