Bloomberg News

Obama Makes Last-Minute Fiscal Appeal as Time Grows Short

December 30, 2012

U.S. President Barack Obama

U.S. President Barack Obama warned of “an adverse reaction in the markets” if Congress doesn’t act. Photographer: Pete Marovich/Bloomberg

President Barack Obama made a last- minute appeal for compromise as three senators said the chances were greater than 50-50 for a deal to avert more than $600 billion in tax increases and spending cuts scheduled to take effect Jan. 1.

In an interview broadcast today on NBC’s “Meet the Press,” Obama warned of “an adverse reaction in the markets” if Congress doesn’t act.

Republicans “say that their biggest priority is making sure that we deal with the deficit in a serious way, but the way they’re behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected,” Obama said, adding that his offers to Republicans have been “so fair that a lot of Democrats get mad at me.”

In a statement, House Speaker John Boehner, an Ohio Republican, called Obama’s comments “ironic, as a recurring theme of our negotiations was his unwillingness to agree to anything that would require him to stand up to his own party.”

The president’s interview with NBC was taped yesterday at the White House. At the other end of Pennsylvania Avenue, Senate negotiators from both parties were seeking compromise legislation to prevent at least some of the tax increases and spending cuts from taking effect.

‘Exceedingly Good’

Appearing on “Fox News Sunday,” Senator Lindsey Graham, a South Carolina Republican, said the prospects for a deal before Jan. 1 are “exceedingly good.” They will include tax increases on upper-income Americans, he said, and represent a “political victory to the president.”

“Hats off to the president, he won,” Graham said. “He stood his ground. He’s going to get tax rate increases -- maybe not $250,000, but upper-income Americans.”

Graham said the “sad news for the country” is that any deal now won’t address debt and will guarantee a fresh fight over deficit reduction when the debt ceiling debate resurfaces early next year. He called on Republicans to have the “courage of our convictions.”

Senators Charles Schumer, a New York Democrat, and Jon Kyl of Arizona, the Senate’s No. 2 Republican, assessed the odds of a deal before Jan. 1 at better than 50-50. “I think a little higher than that,” Schumer said on ABC’s “This Week,” while Kyl said, “I don’t disagree with Chuck.”

At the same time, Schumer said there are “no breakthroughs yet” by bipartisan negotiators in the Senate. Kyl said there is a “significant effort” by “responsible people on both sides of the aisle” because “if we are not able to reach an agreement, it will be dire.”

‘A Chasm’

Not all senators were as optimistic. Appearing on CBS’s “Face the Nation,” Dick Durbin of Illinois, the Senate’s No. 2 Democrat, said, “There’s still a chasm here,” though he declined to say that a deal is impossible. Senator Tom Coburn, on the same program, said the two sides are “far apart.”

Obama said on NBC that “if all else fails,” when a new Congress convenes on Jan. 3 “the first bill that will be introduced on the floor will be to cut taxes on middle-class families.”

Asked about the immediate economic impact of going over the fiscal cliff -- a term used by Federal Reserve Chairman Ben S. Bernanke in February -- the president said, “It’s hard to speculate on the markets, but obviously I think business and investors are going to feel more negative about the economy next year.”

‘Adverse Reaction’

If Americans’ taxes rise and consumer spending is depressed, Obama said, “then obviously that’s going to have an adverse reaction in the markets.”

Markets dropped last week as the stalemate continued. The Standard & Poor’s 500 Index (SPX) fell for a fifth day on Dec. 28, by 1.1 percent to 1,402.45 at the 4 p.m. close in New York. The benchmark Treasury 10-year yield declined four basis points, or 0.04 percentage point, to 1.7 percent at 5 p.m. in New York, according to Bloomberg Bond Trader.

Senate Majority Leader Harry Reid, a Nevada Democrat, and Minority Leader Mitch McConnell, a Kentucky Republican, plan to brief party members in closed-door caucuses this afternoon on the status of private weekend talks between their staffs.

Boehner has called the House into session at 2 p.m. Washington time to be ready for possible action on the budget dispute. The Senate convenes at 1 p.m.

Sticking Point

Whether to extend all tax cuts or only tax cuts on incomes up to $250,000 has been a key sticking point, with Republicans resisting raising wealthier earners’ taxes. When asked what income levels House and Senate Republicans are likely to approve as the cutoff for tax-cut extensions, Graham said on Fox that Republicans know “the votes are there for $400,000 or $500,000” among Democrats.

Schumer said on ABC that there is bipartisan agreement to patch the alternative minimum tax, adjust the Medicare payment for doctors and extend some business and middle-class taxes, while disagreements remain over how far to extend tax cuts on incomes above $250,000, extending unemployment benefits and using revenue increases to pay down automatic spending cuts, among other provisions.

In the event the Senate can’t reach a compromise on all of those issues, Obama has asked Reid to ready a bare-bones bill for a vote by Dec. 31 that extends unemployment benefits and tax cuts on family incomes up to $250,000.

In that scenario, Obama said, “Republicans will have to decide if they’re going to block it, which will mean that middle-class taxes do go up.” Any compromise also needs approval by the House of Representatives.

Military Spending

Obama said if Republicans agree to raise taxes on wealthy Americans, the revenue would be “sufficient to turn off” the sequester provisions of the so-called fiscal cliff, stopping automatic military spending cuts from going into effect -- a sticking point for many Republicans.

Graham, a member of the Senate Armed Services Committee, said he had discussed the impact of the spending cuts on the U.S. military with Defense Secretary Leon Panetta last night and was told that it would mean 800,000 layoff notices at the beginning of the year. The result would be destroying “the finest military in the world at the time we need it the most,” he said.

Tax policy remains the most stubborn divide in the dispute.

Republicans have resisted rate increases for any income level, maintaining that such a move would hurt the economy and hinder job creation -- especially by businesses that pay their taxes on their owners’ individual returns.

While the economy has shown resilience, politicians are wary of reactions by the public, employers and the markets if a deal isn’t reached by the Jan. 1 deadline.

Tax Burden

Failure to address the expiring tax breaks, enacted under President George W. Bush, would mean heavier burdens on taxpayers during the coming filing season, on their regular paychecks and their 2013 tax bills. The nonpartisan Tax Policy Center in Washington estimates the average effect per taxpayer at $3,446 for 2013 if Congress does nothing.

Any last-minute deal wasn’t expected to address a debt ceiling agreement, making the limit on U.S. borrowing authority the next major issue forcing a fiscal debate. The government will hit the $16.4 trillion limit tomorrow, and the Treasury Department will begin using so-called extraordinary measures to finance about $200 billion of deficits into 2013. That would typically be enough to last about two months.

To contact the reporter on this story: Margaret Talev in Washington at mtalev@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net


We Almost Lost the Nasdaq
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus