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US fiscal cliff talks falter

Dec 20 2012 08:00 AFP

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Washington - US President Barack Obama and House Speaker John Boehner duelled over the fiscal cliff on Wednesday, and despite narrowing differences remained stubbornly at odds over how to avoid looming tax hikes and spending cuts.

Obama leaned heavily on Republicans to end the stalemate and compromise on a deficit reduction deal to avert the so-called "fiscal cliff," saying he hoped a year-end deal was possible.

But Boehner pressed ahead with a controversial "Plan B" that extends tax breaks for everyone earning less than $1m per year, and said the House would pass the measure Thursday despite Obama threatening a veto.

"The principal that rates are going to need to go up he conceded. I said I'm willing to make some cuts," Obama told reporters.

"What separates us is probably a few hundred billion dollars. The idea we would put our economy at risk because you can't bridge that gap doesn't make a lot of sense."

The two sides have struggled over how to prevent tax hikes on all Americans and federal spending cuts that kick in beginning January 1.

Obama has offered to extend Bush-era tax breaks for households making under $400,000 a year as part of a 10-year deficit reduction plan.

Boehner presented his counter-offer of extending the tax breaks for everyone making under $1m annually. Both offers have been summarily rejected, although each side says talks are ongoing.

Despite the brinksmanship pushing right up to the deadline, Obama characterized Republican refusal to acquiesce to his plan as "puzzling," adding that there was "no reason why we should" tumble over the fiscal cliff.

"At some point," Obama said, "there's got to be... a recognition on the part of my Republican friends that, you know: take the deal."

Boehner has said he would be satisfied with a balanced $1 trillion in tax revenues and $1 trillion in spending cuts, much of it from entitlement programs like Medicare, as part of a 10-year deal.

He has dismissed the latest White House offer as including $1.3 trillion in new revenues, with $850bn in net spending reductions.

After Obama's White House appearance, Boehner called a snap press conference to throw down the gauntlet, saying the House would pass his "permanent tax relief" for 99.81% of Americans.

"Then the president will have a decision to make. He can call on the Senate Democrats to pass that bill, or he can be responsible for the largest tax increase in American history."

Democratic Senate Majority Leader Harry Reid said it had no chance of passing in the chamber.

Plan B has puzzled many because it offers no spending cuts - the idea is that those could be finalized early in 2013 - and he could be seen as encouraging anti-tax Republicans to effectively vote for a tax hike on the wealthy.

"What is the speaker trying to prove?" asked an exasperated House Democratic leader Nancy Pelosi.

Obama, she said, "keeps opening doors for the speaker to go through," but Boehner's vote announcement "just slammed the door in the president's face."

But Pelosi was careful to say she remained optimistic about a year-end resolution that could pass both chambers of Congress.

"Let's be positive. We're hoping to have an agreement," she said.

Boehner risks a backlash by some conservative groups who see his extension of tax breaks for those earning up to $1m as a mere "bargaining tactic" that does not come close to solving the fiscal crisis.

"We don't buy into the Washington-speak, suggesting that these are actually tax cuts," Andy Roth, vice president of government affairs for the the conservative Club for Growth, which opposes the bill.

But Americans for Tax Reform, headed by Grover Norquist whose anti-tax pledge has been signed by most Republicans in the House, has given lawmakers the green light, saying Boehner's plan technically does not raise taxes.

Top business representatives met senior Obama aides at the White House later on Wednesday including Treasury Secretary Timothy Geithner.

Senior officials told the business leaders, including Tom Donohue from the US Chamber of Commerce and Tim Pawlenty of the Financial Services Roundtable, that Boehner's plan could put the US economy on a path to go over the fiscal cliff, said sources familiar with the consultations.

Obama acknowledged that part of the hesitation about signing on to some of the steepest deficit reduction in decades might lie with Republican refusal to cooperate with him.

"But you know, at some point they've got to take me out of it and think about their voters, and think about what's best for the country," he said.

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us economy  |  us fiscal cliff
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