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Fiscal Cliff

Lawmakers are trying to negotiate a last-minute deal aimed at heading off a year-end combination of spending cuts and tax increases that could trigger a new recession.

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WASHINGTON (CNN) — It’s crunch time for avoiding the fiscal cliff, with President Barack Obama and House Speaker John Boehner and their aides holding private talks on issues that will impact every American.

Three weeks remain to cut a deal before the automatic tax hikes and spending cuts of the fiscal cliff go into effect on January 1.

Obama and Boehner met face-to-face on Sunday for the first time since November 16. It also was their first one-on-one meeting in more than a year, when talks broke down on a comprehensive agreement to reduce the nation’s chronic federal deficits and debt.

In a rare display of bipartisan concurrence, both sides issued identical statements after the meeting that said no details would be forthcoming.

Separate statements on Monday indicated core tax and spending issues remained unresolved, with both sides saying they awaited specifics from the other.
Staff on both sides also have been talking, but few details were available.

Before his talks with Boehner on Sunday, Obama met Friday with House Democratic leader Nancy Pelosi and spoke to Senate Democratic leader Harry Reid, according to a Democratic source familiar with the talks.

The outline for a deal has become clear in recent weeks. Both sides agree that more revenue from taxes should be part of the equation, with Obama seeking $1.6 trillion and Republicans offering $800 billion.

However, Boehner’s side wants additional revenue to come from tax reform, such as eliminating some deductions and loopholes, while Obama demands that tax rates increase for upper-income brackets.

Boehner and Republicans also seek savings from entitlement programs such as Social Security, Medicare and Medicaid totaling another $800 billion or so, while Obama has proposed $400 billion in reduced entitlement costs. Social Security would not be included.

Another sticky issue — whether the need to raise the federal debt ceiling early next year should be part of the discussion — remains unresolved. Obama says absolutely not, while Boehner says that any increase in the federal borrowing limit must be offset by spending cuts.

It remains unclear if a deal will happen before the end of the year or if the negotiations will carry over into 2013, after the fiscal cliff takes effect.

While economists warn that going over the fiscal cliff could lead to recession, the administration has signaled it can delay some of the effects to allow time to work out an agreement.

Without action now, the nonpartisan Tax Policy Center estimates that middle-class families would pay about $2,000 a year more in taxes. Even with a deal, revisions in the tax code and other changes would mean everyone pays a bit more starting next year.

All signs point toward a two-step approach sought by the newly re-elected Obama.

An initial agreement reached now would extend current tax rates for most people while letting rates return to higher levels on upper-income brackets.

The president wants the threshold for higher rates to be income over $250,000 for families, while Republicans oppose any rate hike. A possible compromise would increase the income level for the higher rates to kick in.

Such an agreement would put off the main worry of the fiscal cliff — expiration of Bush-era tax cuts that would raise rates for everyone.

Obama and Democrats say they would then be ready to negotiate significant savings from entitlement programs, while Republicans say they need to first see commitment on entitlement reforms before accepting any higher tax rates.

“The Republican offer made last week remains the Republican offer, and we continue to wait for the president to identify the spending cuts he’s willing to make as part of the ‘balanced’ approach he promised the American people,” said Boehner spokesman Michael Steel in Monday’s statement.

Meanwhile, White House spokesman Jay Carney told reporters that Republicans must accept Obama’s demand for letting Bush-era tax cuts expire on the highest income brackets while extending the current rates for everyone else.
Pressure for some kind of agreement now increases daily.

Some in Congress warn that the legislative process will need two weeks to work through potentially complex measures from any proposed deal, meaning a de facto deadline of Friday may exist for negotiators.

At the same time, voices from inside and outside the process say something must happen now.

On Sunday, International Monetary Fund chief Christine Lagarde echoed numerous economic experts in predicting a sharp drop in confidence and “zero” U.S. economic growth if there’s no agreement.

The tax issue was a main November election campaign topic, with Obama saying the wealthiest Americans must pay more and Republicans opposing any tax rate increase.

Four polls in the past two weeks, including a new one released Monday, show that more Americans support Obama’s proposal.

The Senate has passed a measure that holds down tax rates on income below $250,000 for families, as sought by Obama, while letting rates go up to 1990s levels for higher earners.

Obama and Democrats say House passage of that proposal would clear the way for a broader deal. However, House Republicans refuse to bring it up for a vote amid cracks in the GOP facade against a rate hike.

Sen. Bob Corker of Tennessee said Sunday that he would support raising taxes on the top 2% of income earners, arguing that it will better position Republicans to negotiate for larger spending cuts to Social Security and Medicare despite opposition from many Democrats.

“A lot of people are putting forth a theory, and I actually think it has merit, where you go ahead and give the president … the rate increase on the top 2%, and all of a sudden the shift goes back to entitlements,” Corker said on “Fox News Sunday.”

Fellow Republican Sens. Tom Coburn of Oklahoma and Susan Collins and Olympia Snowe of Maine also have said they could vote for such a limited tax hike.

On the House side, Rep. Tom Cole of Oklahoma reiterated Sunday that he could go along with higher rates on the wealthy.

“You have to do something, and doing something requires the cooperation of the Senate, which the Democrats run, and the signature of the president,” he said on CNN’s “State of the Union.”

Meanwhile, conservative colleague Rep. Marsha Blackburn of Tennessee refused to budge from GOP orthodoxy against higher tax rates.

Even though Obama won re-election and Democrats increased their Senate majority while narrowing the Republican majority in the House, she insisted that the November vote showed that voters “clearly said we don’t want our taxes to go up.”

Washington (CNN) — An angry warning by President Barack Obama delivered well over a year ago foreshadowed his campaign-style approach Wednesday to pressuring Republicans to compromise on a deal to avoid the fiscal cliff.

In July 2011, Obama told House Majority Leader Eric Cantor, one of the lead Republican negotiators in the endless budget battles of president’s first term, that it was time to make a deal or face the consequences.

“Don’t call my bluff,” the president said in ending the White House meeting, according to Cantor. “I’m going to the American people with this.”

Obama subsequently held a series of events around the country, mostly in swing states of the November election, in which he pushed for higher taxes on the wealthy as part of his main campaign theme to restore equal opportunity for the middle class.

He won re-election, and, faced again with the same fiscal issues — a seemingly unbridgeable divide with Republicans over taxes and spending — Obama is again taking his case to the people.

Failure to reach a deal means tax increases and deep spending cuts take effect in five weeks — the fiscal cliff scenario that analysts fear could push the country back into recession.

Obama also wants an agreement reached in the current lame-duck session of Congress to include an increase in the federal debt ceiling, which is expected to be needed as soon as February or March.

On Wednesday, Obama meets with the chief executives of major corporations, while congressional Republicans and Democrats will talk separately with deficit-reduction gurus, including former White House Chief of Staff Erskine Bowles, who co-chaired a special panel appointed by Obama in 2010 to study the matter.

The president also will meet with those described by the White House as middle-class Americans who face a major impact from the fiscal cliff — higher taxes and automatic reductions in military and discretionary federal spending at the end of the year.

Obama concludes the week with a trip Friday to Hatfield, Pennsylvania, to visit a manufacturing operation and deliver a speech.

Meanwhile, House Speaker John Boehner’s office announced Tuesday that congressional Republicans will hold a series of events in Washington and home districts across the country with small business owners to frame Obama’s tax policy as a threat to new jobs.

The series of events on both sides showed the high-profile tactics being used to demonstrate to the nation, including financial markets, that a deal can happen.

Stocks closed lower Tuesday as investors grew increasingly concerned about whether Congress can adequately and swiftly address the situation.

With the U.S. economy showing more signs of improvement in its long recovery from recession, economists point to fears about higher taxes in 2013 as a potential threat to rising consumer confidence.

Asked why Obama was meeting with business leaders and traveling to Pennsylvania instead of negotiating directly with Republicans in Congress, White House Press Secretary Jay Carney said Tuesday it was important to bring the broader American public into the discussion.

The fiscal cliff resulted from a failure to reach a deficit reduction agreement in the past two years due to longstanding differences between Democrats and Republicans on taxes — particularly whether to extend tax cuts from President George W. Bush’s administration.

Obama made the issue a central theme of his election campaign, and now the White House believes the president’s re-election validated his call for including more tax revenue in addressing the nation’s chronic federal deficits and debt.

“This topic was perhaps the most debated, the most discussed, the most analyzed, for a year,” Carney told reporters, adding that the election result showed Americans supported Obama’s approach.

“To suggest that we should, now that the election’s over, stop talking to the American people about these vital issues is, I think, bad advice,” Carney said.

Last week, Obama’s former campaign manager, Jim Messina, said the president’s re-election campaign and its grass-roots resources will “live on,” most likely as a tool to promote the president’s second-term policies.

Obama for America, the name of the campaign, already released an e-mail to its distribution list in an attempt to educate readers on the president’s fiscal cliff argument and to rally supporters behind him.

Senate Republican leader Mitch McConnell of Kentucky complained that Obama was “back on the campaign trail” instead of “sitting down with lawmakers of both parties and working out an agreement.”

“We already know the president is a very good campaigner,” McConnell said on the Senate floor. ” … What we don’t know is whether he has the leadership qualities necessary to lead his party to a bipartisan agreement on big issues like we currently face.”

Obama wants to let tax rates for income over $250,000 for families or $200,000 for individuals return to higher 1990s levels, while maintaining current rates for the rest of the country. He contends his plan would prevent a tax hike for 98% of Americans.

Republicans seeking to shrink the size of government oppose increasing any tax rates, arguing that Obama’s plan would hinder job growth because some small business owners who file personal returns would pay higher taxes under it.

While aides on both sides have been talking, no follow-up meeting between Obama and congressional leaders has been scheduled after their initial post-election discussion on November 16.

Instead, Obama met Tuesday with small business owners, the first in a series of events this week intended to highlight his push for raising taxes on the wealthiest 2% of Americans while maintaining current rates for everyone else.

After the White House gathering, three of the 15 small business owners who took part said they wanted certainty about their own tax situations while preventing middle-class Americans from paying higher taxes.

Andra Rush, who founded Rush Trucking of Wayne, Michigan, said her message to Obama was that failure to extend the tax cuts to the middle class could stall what she called new economic momentum in the country.

“I would have higher tax rates,” Rush conceded, adding that it was more important for “ordinary Americans” to have more money to spend instead of paying it in taxes if everyone’s rates go up.

Boehner and other influential GOP figures have declared their willingness to consider other ways to boost tax revenue as part of a broader deal that includes entitlement reforms and spending cuts.

That position undermines the no-tax-increase pledge championed by anti-tax crusader Grover Norquist, which Democrats consider to be a major impediment to a deficit reduction deal.

Some Republicans — including conservative Sens. John McCain of Arizona, Bob Corker of Tennessee, Saxby Chambliss of Georgia, Tom Coburn of Oklahoma and Lindsay Graham of South Carolina as well as Rep. Peter King of New York and Scott Rigell of Virginia — have dropped their adherence to Norquist’s pledge.

Norquist responded harshly Monday night, telling CNN that those denouncing the pledge were breaking their commitment to voters. He targeted King for saying a pledge signed years ago no longer applied.

King “tried to weasel out” of the pledge, adding: “I hope his wife understands commitments last a little longer than two years or something.”

According to Norquist, King knew when he signed the pledge that it applied to “as long as you’re in Congress.”

“It’s only as long as you’re in the House or the Senate. If he stayed too long, that’s his problem,” Norquist added.

To CNN Chief Political Analyst Gloria Borger, the softening tone by some in the GOP was explained by new poll numbers that showed 45% of Americans would blame Republicans for failing to avoid the fiscal cliff, while 34% would blame Obama.

Republicans insist Democrats must agree to cut discretionary spending and make significant reforms to Medicare and Social Security as part of a deficit reduction deal.

However, organized labor and other elements of the Democratic base oppose any major reforms to the popular entitlement programs. While some Democratic legislators express willingness to reform Medicare and Medicaid, they reject making Social Security reform part of the fiscal cliff negotiations, saying it is self-funded and therefore doesn’t add to the deficit.

The CNN/ORC International poll released Monday also showed that a solid majority of respondents — two thirds — supports the Democratic stance that any agreement should include a mix of spending cuts and tax increases. Of that total, Republicans favor such an approach by 52%-44%.

Another poll on Wednesday by ABC News and the Washington Post showed a strong majority favoring the Obama tax proposal to raise tax rates on the wealthy. In addition, the survey indicated most Americans oppose raising the eligibility age of Medicare, one of the possible reforms proposed by some in the deficit debate.

Without a deal, tax cuts from 2001 and 2003 will expire, raising rates for everyone starting in January. In addition, spending cuts would reduce spending on the military, national parks, the Federal Aviation Administration and other government services.

However, the government and Congress still would have time to prevent draconian effects from the fiscal cliff when a new Congress convenes in January.

William Galston, a senior fellow in governance studies at the Brookings Institution, called that a form of brinksmanship best avoided.

“To be sure, no one believes that non-agreement by December 31 would be the end of the story. After a period of finger-pointing, discussions would resume,” he wrote last week in a New Republic opinion piece. “But equally, no one knows how the failure to reach agreement before the end of 2012 would affect the dynamics of the negotiations.”

In addition, “we can be reasonably sure … that national and global markets would react adversely and that businesses, which are already retreating from planned investments in new plant and equipment, would become even more uncertain and risk-averse.”

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