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Obama, Congress Face Budget Showdown

Washington Scrambles as Spending Cuts, Tax Hikes Loomi
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Michael Bowman
November 12, 2012 2:33 PM
Unless the U.S. Congress acts by year’s end, federal taxes will rise for all income groups, and across-the-board spending cuts will go into effect. Economists say the combination of tax hikes and budget cuts -- commonly known as the fiscal cliff -- could send the U.S. economy back into recession. VOA’s Michael Bowman in Washington reports on efforts to forge a bipartisan solution that, so far, has eluded a politically-divided Congress.

Washington Scrambles as Spending Cuts, Tax Hikes Loom

Cindy Saine
Newly re-elected President Barack Obama appears to be headed toward another clash over taxes and government spending with the House of Representatives, where Republicans held on to their majority after the election and Democrats expanded their majority in the Senate. 

In grueling negotiations on the level of government spending, taxes and how to reduce the national deficit, House Republicans have refused to consider any tax increases for anyone.  Democrats have insisted that if they agree to cuts in government programs they strongly support, Republicans need to give in and let taxes increase for the wealthiest Americans. 


What is the U.S. Fiscal Cliff?

  • An agreement intended to force politicians to compromise and make deals.
  • Without a deal by January 1, 2013, sharp spending cuts would hit military and social programs.
  • Tax hikes also would go into effect.
  • The combination would reduce economic activity, and could boost unemployment and push the nation back into recession.
With the elections over, President Obama has invited congressional leaders to the White House to start negotiating a deal to prevent sharp tax increases and spending cuts - often referred to as the "fiscal cliff" - and says that he is open to compromise on the stubborn fiscal issues that have paralyzed Washington.  But he also made clear that Republicans are going to have accept tax increases for top earners or expect a presidential veto.

"But, I refuse to accept any approach this is not balanced," he said.  "I am not going to ask students and seniors and middle class families to pay down the entire deficit while people like me making over $250,000 are not asked to pay a dime [10 cents] more in taxes.  I am not going to do that."

Tax burden

For his part, Republican House Speaker John Boehner also said he hopes productive conversations begin soon with the White house, but again drew a line at the issue of higher taxes for Americans earning the highest incomes.

House Speaker John Boehner (R-OH)House Speaker John Boehner (R-OH)
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House Speaker John Boehner (R-OH)
House Speaker John Boehner (R-OH)
"The Number One issue in the election was about the economy and jobs," he said. "Everyone wants to get our economy moving again, everyone wants to get more Americans back to work again.  Raising tax rates will slow down our ability to create the jobs that everyone says they want."

On the tax issue, analysts point out that the cuts passed under former President George W. Bush are set to expire at the end of this year unless the president signs an extension, so the burden is on Republicans to seek a deal.  Ronald Brownstein, editorial director of the National Journal, says Speaker Boehner does not seem to realize that he can no longer refuse to cooperate.

"With all due respect, it is not really his choice anymore," he said. "What is different about this environment is that the Bush tax cuts will expire and will revert to the rates under [former president Bill] Clinton for everybody unless President Obama signs an extension, and after this campaign that would be pretty shocking."

Avoiding "fiscal cliff"

Former U.S. secretary of agriculture and former Democratic congressman Dan Glickman says he is optimistic that Congress and the president will take action over the next 45 days to avoid going over the "fiscal cliff."

"But since we have a reelected president, I am hopeful that they can work out some sort of a deal," he said. "I suspect that it will be a short-term deal rather than a long-term deal to get us over this imminent cliff or crisis, so that we can go into next year with a little more time to think through these things.  But that way, I think the markets will be fairly calm and there will not be people thinking the United States cannot get its act together at all."

David Wasserman, an analyst with the Cook Political Report, says the chances are better for the current Congress to tackle budget challenges than the newly-elected Congress, which he says is likely to be even more polarized, and with even fewer members who call themselves moderates.

"I have been warning people that it is going to be harder to get something big passed when Congress is sworn in in January than it is in these next 45 days, because we have so many people who do have an incentive to reach across the aisle who are leaving after January," he said.

Sequestration threat

Analysts point out that the president and Congress also agreed more than a year ago on a mechanism known as sequestration - severe across the board cuts on government programs, including defense spending.  They would automatically take effect in January 2013 unless the Democratic-controlled Senate and the Republican-controlled House reach an agreement on taxes and spending. 

Neither Democrats nor Republicans wants those dramatic spending cuts, so that may give them the incentive they need to try to find common ground with President Obama when they are meeting with him at the White House.

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Comment Sorting
Comments
     
by: Anonymous
November 13, 2012 12:09 PM
I need the compromise measure to bolster the economy !!!to avoid the meltdown.


by: Brandt Hardin
November 12, 2012 8:45 PM
Will we ever see bipartisan politics in our country again? The fringe element within the Republican Party has pushed them all to the far right of the isle where they’ve gridlocked our government for two years now. Will the next two be any different? They’ve been very public about their main goal being to block and bamboozle the President’s every move. It takes many hands to paint the Blackface on Obama. See my visual report of his makeup session at http://dregstudiosart.blogspot.com/2012/10/bamboozling-obama.html


by: Anonymous
November 12, 2012 2:53 PM
increase income and deduct spending, helpful to U.S.


by: Mike_LV from: Las Vegas
November 12, 2012 11:14 AM
Well at least if Congress does the usual...i.e. nothing, at least we'll have some plan for deficit reduction. Even if it sends us back to recession, we'll be spending less right?

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