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Obama seeks deal as US 'fiscal cliff' looms

President scrambles to avoid year-end tax hikes and budget cuts that could plunge shaky US economy back into recession.
Last Modified: 28 Dec 2012 00:03

President Barack Obama has cut short his holiday and was returning to Washington as no deal appeared in sight to avoid the year-end "fiscal cliff" of higher taxes and deep spending cuts that could spin the still-fragile economy back into a recession.

Obama's decision prompted Speaker John Boehner to reconvene the US House of Representatives on Sunday, December 30 through January 2, the final day of the current Congress, according to Reuters news agency.        

The US treasury secretary earlier warned that the government would hit its borrowing limit on Monday, the final day of the year.

Obama made phone calls to congressional leaders late on Wednesday before leaving his Hawaiian vacation for Washington, the White House said on Thursday.

The US appears to be headed over the fiscal cliff, Senate Democratic Leader Harry Reid said on Thursday. He blamed Boehner for failing to agree on a compromise with the Democrats.

He said Boehner cared more about keeping his position when the new US Congress comes in on January 3.

On Wednesday, Treasury Secretary Timothy Geithner told Congress that he would take "extraordinary measures as authorised by law" to postpone a government default.

But he said uncertainty over the outcome of the fiscal cliff negotiations made it difficult to determine how much time those measures would buy.

In recent days, Obama's aides have been consulting with Reid's office, but Republicans have not been part of the discussions, suggesting that much still needs to be done before Congress can pass a deal, even a small one, by Monday.

At stake are tax cuts that expire on December 31 and revert to the higher rates in place during the administration of President Bill Clinton in the 1990s. That means $536bn in tax increases that would affect nearly all Americans.

In addition, the military and other federal departments would have to cut $110bn in spending.

The changes are part of a long-delayed need for the government to address its chronic deficit spending.

Concessions demanded

Obama has sought to include an increase in the borrowing limit, Boehner and other Republican leaders have demanded concessions in return.

Top US Senate Republican Mitch McConnell said he will meet Obama on Friday at the White House.

"I'm going to be down there at the president's meeting, and we'll see who else is there," McConnell told reporters Thursday, declining to say whether the other three leaders in Congress, including Boehner, would attend the meeting.

The Senate is due in session on Thursday, although the immediate agenda includes other matters. The House has no plans to convene, following last week's rebellion in which conservatives torpedoed Boehner's legislation to prevent scheduled tax increases on most, while letting them take effect on million-dollar wage earners.

Obama insists that no tax cuts be extended for anyone earning over $400,000 per year.

Geithner said the negotiations over tax and spending policies made it difficult to predict how long he can delay reaching the borrowing limit.

The absence of a specific timeframe may be intended to pressure Republicans to allow a debt limit increase in a potential budget deal.

For now, Treasury will take several steps to delay reaching the limit.

Geithner said it will stop selling Treasury securities used by state and local governments to support their own sales of tax-exempt bonds. That will keep the department from accumulating more debt.

And the department will stop investing in government retirement funds.

The two sides may strike a short-term agreement before New Year's that postpones spending cuts until spring, according to the Associated Press.

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Source:
Agencies
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