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Wednesday 1 October  

Hopes dive of deal to avoid US fiscal cliff

Published on 21 December 2012 - 8:34am
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The White House accused Republicans Thursday of walking away from a deal and mounting futile diversionary votes as hopes plunged of a deal to stave off a damaging year-end fiscal crisis.

If the two sides cannot reach a deficit-cutting agreement before the end of the year, taxes for all Americans will rise and huge automatic spending cuts will be triggered, which could cause a recession and jolt the global economy.

But talks between President Barack Obama and House Speaker John Boehner on averting the "fiscal cliff" have stalled and Republicans now plan to vote on a fallback "Plan B" that the White House sees as pointless grandstanding.

"Plan B... is a multi-day exercise in futility at a time when we do not have the luxury of exercises in futility," White House spokesman Jay Carney said hours before the vote in the House of Representatives.

"It cannot pass the Senate. The president would veto it."

Plan B would effectively extend George W. Bush-era tax breaks for everyone apart from those earning more than $1 million a year and also redirect automatic spending cuts away from defense to other programs.

But the White House charges that the bill would offer big tax breaks to wealthy Americans earning less than $1 million who do not need them.

Obama originally insisted on letting Bush tax cuts expire on households earning more than $250,000 and has since upped the threshold to $400,000 in a bid to reach a compromise with Boehner.

The president says the United States cannot afford to extend the cuts, and wants to spend extra revenues paying down the deficit and rebooting the economy through educational programs and infrastructure spending.

The showdown, part of now traditional festive season brinkmanship between Republicans and Democrats in divided Washington, has shown that Obama's re-election win did nothing to ease the dysfunction gripping US politics.

But neither side is willing to give an inch, as they know the episode has deep implications for the balance of power in Obama's second term.

Boehner's tactics have mystified many Washington watchers, with some believing that he is unable to sell any deal with Obama to his restive caucus and so is looking to defer the blame for the failure to reach an accord.

His move also found some opposition from the right -- with conservatives who see raising taxes as apostasy balking at being asked to hike any rates.

Republican deficit hawks were also initially unhappy that the bill did nothing to cut government excess -- which they see as the main driver of the runaway deficit -- prompting their leaders to sweeten the pot with a companion spending cut bill.

After a frantic spell of arm twisting by Republican bosses, the party's House leader Eric Cantor said Thursday "we're going to have the votes."

The bill is almost certain to die in the Democratic-led Senate however, leaving efforts to avert the fiscal cliff down a dead end -- barring any resumption of bargaining between Boehner and Obama.

The White House insists the two sides are not that far apart and officials privately say Obama has compromised on issues like Social Security retirement benefits and tax rates that have already angered liberal supporters.

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 health care for the elderly, as part of a 10-year deal.

Obama's plan offers approximately $1.2 trillion in new tax revenues, with just under $1 trillion in spending cuts -- though Republicans dispute whether all of the austerity measures are real.

"They're a couple hundred billion dollars apart. This is absolutely senseless that the speaker is doing what he's doing. These are gyrations that I've never seen before," said Democratic Senate leader Harry Reid.

But Boehner warned that if Democrats and the White House do not budge: "they'll be responsible for the largest tax hike in American history."

"Their Plan B is just to slow-walk us over the fiscal cliff."

With no end in sight to the crisis, Reid and Cantor have both warned lawmakers they will have to traipse back to Washington between the Christmas and New Year holidays when Washington is normally shut down.

The stalemate is also likely to play havoc with Obama's plans to return to his native Hawaii for his annual Christmas vacation, as he seeks to recharge after an exhausting year and lay plans for his second term.

© ANP/AFP

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