Obama addresses looming 'fiscal cliff'
Published Friday, November 9, 2012 1:20PM EST
Last Updated Friday, November 9, 2012 4:36PM EST
WASHINGTON -- President Barack Obama said Friday his re-election means Americans are behind his approach for avoiding a looming "fiscal cliff" that threatens a new recession -- and that his approach means the country's wealthiest people will have to pay more in taxes.
A White House spokesman later said Obama will veto any bill extending tax cuts for those making more than $250,000 a year.
Obama's brief public comments were his first since his re-election, and they set the tone for upcoming tense talks with congressional Republicans on avoiding a combination of deep spending cuts and the expiration of Bush-era tax cuts that automatically take effect Jan. 1 and total $800 billion next year alone.
Republicans want the approach to avoiding the fiscal cliff to rely on spending cuts, but Obama insists that higher taxes for the wealthy must be part of the solution.
"We can't just cut our way to prosperity," the president said.
Obama reminded his audience that if no deal is struck with a still-divided Congress, "everybody's taxes will automatically go up on Jan 1. Everybody's. ... That makes no sense. That would be bad for the economy."
He also invited Congressional leaders of both parties to the White House next week for talks on how to avoid the fiscal cliff.
Obama had been silent since his victory speech early Wednesday, and leading Republicans have filled the vacuum with promises to stand resolutely against any effort to raise tax rates on the country's richest people. Obama's long-held position is that tax rates on family income over $250,000 should jump back up to Clinton-era levels.
All sides say that they want a deal, and that now that the election is over, everyone can show more flexibility than in the heat of the campaign. Congress returns to work on Tuesday and faces about a month and a half of work before the holidays.
But Republicans warn that a fight could hurt efforts for future compromise in a bitterly divided Capitol and threaten Obama's second-term agenda.
"Raising tax rates will slow down our ability to create the jobs that everyone says they want," John Boehner, the speaker of the Republican-controlled House of Representatives, told a press conference Friday shortly before Obama spoke. Boehner has warned that such a plan might not even pass the Senate, where Democrats hold control.
A lot is at stake. A new Congressional Budget Office report on Thursday predicted that the economy would fall into recession if there is a protracted impasse in Washington and the government falls off the fiscal cliff for the entire year. Though most Capitol-watchers think that a long deadlock is unlikely, the analysts say such a scenario would cause a spike in the jobless rate to 9.1 per cent by next fall. The rate is now at 7.9 per cent.
Some analysts believe that the fiscal cliff is more like a fiscal slope and that the economy could weather a short-term expiration of the Bush-era tax cuts and the government could manage a wave of automatic spending cuts for a few weeks.
But at a minimum, going over the fiscal cliff would rattle financial markets as the economy struggles to recover. Markets have already slumped worldwide as investors have refocused on challenges to the world economy following Obama's re-election.
World stocks mostly fell Friday as fears persisted over the "fiscal cliff" that's seen as a big threat to the economic recovery.
By midafternoon in Europe, Britain's FTSE 100 index of leading companies was down 0.5 per cent at 5,749.88 while Germany's DAX was 1.2 per cent lower at 7,120.13. The CAC-40 in France slipped 0.3 per cent to 3,397.53.
On Wall Street, an early rally faded after President Barack Obama said he would stick to his pledge to seek higher taxes from the wealthy as part of his plan to reduce the U.S. government's budget deficit. At 3:00 p.m. (2000 GMT) the Dow was up nine points at 12,821.
The CBO analysis says the looming combination of automatic tax increases and spending cuts would cut the massive U.S. deficit by $503 billion through next September, but that the fiscal austerity would cause the economy to shrink by 0.5 per cent next year and cost millions of jobs.
The new study estimates that the nation's gross domestic product would grow by 2.2 per cent next year if all Bush-era tax rates were extended and would expand by almost 3 per cent if Obama's 2-percentage-point payroll tax cut and current jobless benefits for the long-term unemployed were extended as well.
Republicans say they're willing to consider new tax revenue but only through drafting a new tax code that lowers rates and eliminates some deductions and wasteful tax breaks. And they're insisting on cuts to federal aid programs like Medicare, Medicaid and food stamps.
Democrats are sure to press for a guarantee that tax reform doesn't end up hurting middle-income taxpayers at the expense of upper-bracket earners. Republicans want to press for corporate tax reform and a guarantee that the top rate paid by individuals and small businesses goes down along the way.