Speaker remains hopeful on US 'fiscal cliff' talks

Representative Henry Waxman speaks during a news conference calling for no reduction in the Medicare and Medicaid budgets, as part of the year end budget talks on Capitol Hill. REUTERS/Joshua Roberts
Representative Henry Waxman speaks during a news conference calling for no reduction in the Medicare and Medicaid budgets, as part of the year end budget talks on Capitol Hill. REUTERS/Joshua Roberts
US House of Representatives Speaker John Boehner offered no concrete signs of progress today on "fiscal cliff" talks but said he remained hopeful that both sides would reach an agreement by the end-of-year deadline.

Amid signs the White House and Boehner's office are making headway in the talks, Boehner repeated his now-familiar call for President Barack Obama to offer a new proposal to avert the automatic steep tax hikes and spending cuts set for the end of the year unless Congress intervenes.

"I'm an optimist. I'm hopeful we can reach an agreement. This is a serious issue and there is a lot at stake," Boehner said on the House floor as he opened the day's legislative session.

The pace of staff-level talks has quickened since Boehner met on Sunday with Obama at the White House. Boehner said, "It was a nice meeting, it was cordial," but Republicans still needed to see more specific spending cuts from the president.

The two major elements of the fiscal cliff are broad spending reductions starting Jan. 1 and tax cuts that expire at the end of the year. Economists have warned the fragile economy could slip back into recession without a deal.

Obama and Boehner have exchanged opening proposals aimed at cutting deficits by more than $4 trillion over the next 10 years, but Republicans have repeatedly called for Obama to submit more spending cuts before talks can make progress.

"Where are the president's spending cuts? The longer the White House slow-walks this process the closer our economy gets to the fiscal cliff," Boehner said.

The biggest immediate conflict is over Obama's demand that tax rates rise for the wealthiest 2 percent of Americans. Republicans want existing lower rates continued for all brackets and prefer to raise more revenue by eliminating tax loopholes and reducing deductions.

Republicans also want deeper spending cuts than those sought by Obama and fellow Democrats, particularly on social entitlement programs like the government-funded Medicare and Medicaid healthcare plans.

Representative Chris Van Hollen, the top Democrat on the House Budget Committee, told MSNBC on Monday that Congress could resolve some of the issues by the December 31 deadline - among them the hikes in tax rates - but might have to leave others for the new Congress that takes office in January.

While senior figures from both parties caution that they are far from a deal, a softening of partisan rhetoric in recent days and the increased frequency of talks has created speculation that negotiations may be going well.

Complicating the talks is the looming need for an increase in U.S. borrowing authority that Obama wants before Congress wraps up for the year. Without the authority, the government will hit its $16.4 trillion borrowing limit by year's end and run out of steps to stave off default by mid-February.

Obama has asked for the power to raise U.S. borrowing authority without legislation from Congress in hopes of avoiding another confrontation with Republicans like the 2011 showdown that led to an embarrassing downgrade of the U.S. credit rating.

Also in the mix is a payroll tax "holiday" set to expire, which, if not extended, will quickly reduce the take-home pay of a large segment of the U.S. workforce.

The holiday, now in its second year, has been providing workers with an average of about $1,000 a year in extra cash. Significant divisions remain on the payroll tax question in part because it funds the Social Security retirement program.

The payroll tax is paid by employers and employees each at a rate of 6.2 percent of wages, up to a maximum of $110,110. The holiday, enacted in 2010, reduced the rate by 2 percentage points on the portion paid by the worker.

Van Hollen said Republicans were coming around on the tax-rate hikes on the wealthiest Americans and there was a good chance of resolving that soon. But the other things might have to wait, he said, mentioning the budget cuts and the payroll tax.

If not complete by Jan. 1, he said, "my belief is you would get it done very soon" after the New Year, noting that the government has some flexibility on withholding taxes that could limit the immediate hit to taxpayers while negotiations continued into 2013.

There were no travel plans Tuesday on Obama's public schedule, which observers on Capitol Hill hoped signaled more negotiations.

The lack of demonstrable progress has kept investors from making aggressive bets in recent weeks.

But stocks have steadily marched higher on thin volume. The S&P 500 surpassed 1,433.38 on Tuesday, retracing losses in the first seven sessions after Obama's re-election.

"I guess in our own dysfunctional way, there is progress," said Frank Davis, director of sales and trading at LEK Securities in New York.

"Since conversations are occurring, it clarifies at least they are taking some action. My personal gut is they'll jostle this into the holiday week and try to do a last-minute push."

 

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