The U.S. needs to end its political gridlock in order to avert the so-called fiscal cliff that is jeopardizing a “fragile” recovery in the global economy, Australian Treasurer Wayne Swan said.
“Without action by Congress, the consequences would be very grave,” Swan said in his e-mailed weekly note yesterday. “The world cannot afford to see a continuation of the gridlock that has bedeviled the U.S. political system in recent years.”
President Barack Obama, claiming a mandate from voters after his Nov. 6 re-election, faces opposition over his call for an immediate tax-cut extension for people earning less than $250,000 and insistence that top earners pay more.
The U.S. faces $1.2 trillion in mandated spending reductions and tax boosts over a decade starting Jan. 1 should Congress fail to agree to reduce the U.S. deficit, which totaled $1.09 trillion in fiscal 2012.
Obama has offered no public concessions to House Speaker John Boehner, who has cited public support for the re-elected House Republican majority for his stance of backing no increases in tax rates. Obama and Boehner will meet at the White House Nov. 16, along with House Democratic Leader Nancy Pelosi, Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell.
Swan, who held discussions with Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben S. Bernanke in Washington last week, called for the Democrats and the Republicans to work together to avoid the cliff.
“Congress must heed President Obama’s call to work together to find common ground and get the U.S. budget back on a sustainable long-term track while also continuing to support jobs and economic growth,” Swan said.
The president wants to let George W. Bush-era tax cuts lapse on income of individuals above $200,000 and of married couples above $250,000. That would push the top tax rate to 39.6 percent from 35 percent.
The Senate, controlled by Democrats, and the House, controlled by Republicans, have each passed one-year extensions of their own proposals. The policies preferred by Democrats would lead to about $58 billion in higher taxes on top earners in 2013.
Concern about the impact of a potential political stalemate over the fiscal cliff has already had an impact on global markets. On Nov. 10, the euro slid the most in four months versus the yen on concern the U.S. budget showdown will push the world’s biggest economy into recession and Greece will struggle for more rescue funds.
The European Commission on Nov. 7 forecast that the 17- nation euro economy will expand 0.1 percent in 2013, down from a May forecast of 1 percent. It cut the estimate for Germany, Europe’s largest economy, to 0.8 percent from 1.7 percent.
The Congressional Budget Office has said the U.S. economy would slow by as much as 0.5 percent next year if Congress fails to prevent measures to reduce the deficit from kicking in on Jan. 1.
While Australia, the world’s 12th-largest economy, has shown resilience to the global slowdown by expanding at an annual pace of about 4 percent in the first half of the year, Swan said the lack of a political compromise over the fiscal cliff would threaten all economies.
“The impact could stretch far beyond the U.S., striking a severe blow to the fragile global recovery,” Swan said. “No one should underestimate the urgency of averting this kind of dire scenario.”
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