Curtain rises on Washington's 'fiscal cliff' drama

KEVIN DRAWBAUGH AND KIM DIXON
Last updated 08:33 14/11/2012

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The full cast of lawmakers in the US "fiscal cliff" debate have gathered in Washington for the first time since the elections, setting the stage for a week of trial balloons and rhetorical repositioning.

The US Congress returned from a break after the November 6 elections, with Senate Republican Leader Mitch McConnell and Democratic House of Representatives Leader Nancy Pelosi set to meet with rookie lawmakers from their respective parties.

Top of the Capitol Hill agenda: dealing with a year-end convergence of urgent tax and spending issues that, if mishandled, could plunge the economy into another recession.

At the White House, President Barack Obama - fresh from a re-election triumph over Republican challenger Mitt Romney - was set to host liberal and labour groups expected to urge protection of social programs from Republican demands for change.

Business leaders were convening at the US Chamber of Commerce, the nation's largest corporate lobbying group, to discuss the "fiscal cliff," while world financial markets were subdued in early trading, in part weighed down by fears Congress and Obama will not keep the economy from toppling over the edge.

A regular survey of small business sentiment showed hopes of a pick-up in sales, but widespread uncertainty among owners about business conditions in the next six months. The National Federation of Independent Business said its optimism index rose 0.3 point to 93.1 in October.

"We're three weeks away from serious negotiations on the fiscal cliff," said Greg Valliere, chief political strategist at Potomac Research Group, a Washington policy analysis firm.

"This is a photo-op week, next week is Thanksgiving, then lawmakers will straggle back to Washington to examine what staffers have come up with. The dominant theme in these three weeks will be trial balloons," he said.

TAX, BUDGET SHOCK LOOMS

At the end of 2012, low, "temporary" tax rates enacted a decade ago under former President George W. Bush are set to expire. If Congress does nothing, individual income tax rates will rise sharply. That is a key facet of the "fiscal cliff."

Another element is deep, across-the-board cuts in federal programs that will take effect in January if Congress takes no action. Lawmakers fear the cuts, known as the "sequester," could devastate the economy and many are working to prevent them.

On the Bush tax cuts expiration, Democrats and Republicans are still deeply split. Obama favours extending the Bush rates for most Americans, but a return to higher, pre-Bush tax rates for income over $200,000 per individual.

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Raising tax rates would bring in more revenue to address the federal government's yawning budget deficit.

Republicans oppose higher tax rates for anyone. Senator Saxby Chambliss - a senior Republican who has been a member of an informal Senate ''Gang of Eight'' focused on fiscal issues - said the GOP's basic position on revenue has not changed.

"What is needed now is for the president to say '‘this is what I'll accept'," Chambliss said in a brief Capitol hallway interview. "He has flexibility to make a deal."

Republican Representative Paul Ryan, who was Romney's running mate, told the Milwaukee Journal-Sentinel in his home state of Wisconsin that increasing government revenues could be part of a deficit solution, but he stood firm on tax rates.

"You can increase revenues without having to raise tax rates," Ryan said, echoing a Republican theme about boosting revenue through closing tax loopholes and economic growth.

"Our fear is that if you raise tax rates you hurt economic growth. You hurt small businesses. So through tax reform you can get higher revenues without damaging the economy. We think that's the better way to go," he said.

- Reuters

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