Washington: The White House expressed optimism on Monday that a deal would be reached to avert the looming fiscal cliff that threatens to send the world’s largest economy tumbling back into recession.
President Barack Obama spoke over the weekend to Republican House Speaker John Boehner and Democratic Senator Harry Reid, who control their respective chambers of Congress and are therefore key players in brokering an accord.
“We remain confident that we can achieve an agreement. Work has to be done. Work is continuing to take place,” White House spokesman Jay Carney told reporters.
US lawmakers are returning to work after the week-long Thanksgiving holiday with time running out to strike an ever-elusive budget deal that requires painful compromises from both Republicans and Democrats.
Several leading Republicans have indicated a willingness in recent days to accept a deal that includes more revenue from ending tax loopholes in return for significant funding cuts in social welfare programs beloved by Democrats.
Carney said such moves represented “what we hope is a difference in tone and approach” and indicated that Obama, whose decisive re-election has given him more clout in the negotiations, was also prepared to make sacrifices.
“He’s willing to make tough choices as president in order to achieve that balanced approach to deficit reduction and economy growth that’s so important for our future economic potential.”
If no deal is reached before the end of the year, a poison pill of tax hikes and massive spending cuts, including slashes to the military, comes into effect with potentially catastrophic effects for the fragile US economy.
Independent economists predict the overall economy would take a hit of more than $500 billion, probably spawning a new recession.
The White House added more gloom to the doomsday scenario on Monday, highlighting the devastating impact that plunging off the fiscal cliff would have on consumer spending through the holiday season and into next year.
“American consumers are the bedrock of our economy, driving more than two-thirds of the overall rise in real GDP over 13 consecutive quarters of economic recovery since the middle of 2009,” Carney said earlier Monday.
“And as we approach the holiday season, which accounts for close to one-fifth of industry sales, retailers can’t afford the threat of tax increases on middle-class families,” he warned.
Accompanying his statement was a report by Obama’s Council of Economic Advisers that said US consumers could spend almost $200 billion less than they otherwise would in 2013 just because of higher taxes.
The fiscal cliff is the result of legislation designed to force action to rein in the runaway government budget deficit and make a dent in America’s ballooning $16.3 trillion public debt.
It has two main parts.
One would see tax cuts introduced by former president George W. Bush that lowered marginal rates for nearly all US taxpayers expire on January 1.
The other would force significant cuts to programs like Social Security, which provides government funds to the elderly, the disabled, widows and the poor, and Medicare, which covers health insurance for the elderly.
It would also see cuts to military spending, anathema to most Republicans, and other government programs.
Obama says any deal he concludes would have to include an increase in taxes on wealthy taxpayers, something congressional Republicans so far have rejected.
The plan he proposes — and presented to voters on the campaign trail — would raise the tax rate for top earners, but keep Bush-era tax rates for individuals who make less than $200,000 per year and families earning less than $250,000.
Republicans insist raising taxes on the wealthy would be counter-productive and only serve to slow economic growth by dampening spending and hiring and investment by business owners.
The top income tax rate, which now stands at 35 percent, will automatically revert to 39.6 percent at the beginning of 2013 unless there is a new budget deal.
Republicans prefer to look at ways to bring in more tax revenue by completely overhauling the old and unwieldy US tax code, including closing “special interest loopholes” likely to hit others as well as the rich.
Obama has made Treasury Secretary Timothy Geithner the lead White House negotiator in the budget talks, a source close to the matter told AFP.
No timetable has been announced but efforts to forge a deal are expected to intensify this week with the Senate returning to work on Monday and the House coming back on Tuesday.
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