AMERICAN President Barack Obama said last night that his re-election means Americans are behind his approach for avoiding a looming “fiscal cliff” that threatens a new recession in America, adding that his approach means the country’s wealthiest people will have to pay more in taxes.
Obama’s comments were his first since his re-election and set the tone for upcoming tense talks with Republicans in congress on avoiding a combination of deep spending cuts and the expiration of Bush-era tax cuts that will take effect on 1 January and amount to $800bn (£502bn) billion next year alone.
“We can’t just cut our way to prosperity,” the president said. “We have to combine spending cuts with revenue. That means asking the wealthiest Americans to pay a little more in taxes.”
Obama told his audience that if no deal is struck with a still-divided Congress, “everybody’s taxes will automatically go up on 1 January. 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 on Wednesday. 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 (£157,000) should jump back up to Bill Clinton-era levels.
Both sides say they want a deal, claiming that now that the election is over, everyone can show more flexibility. 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 divided country and threaten Obama’s second-term agenda. “Raising tax rates will slow down our ability to create the jobs that everyone says they want,” said John Boehner, the speaker of the Republican-controlled House of Representatives. Boehner has warned that such a plan might not even pass the Senate, where Democrats hold control.
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 commentators think that a long deadlock is unlikely, the analysts say such a scenario would cause a spike in the jobless rate.
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.
The CBO analysis says the looming combination of automatic tax increases and spending cuts would cut the deficit by $503bn (£316bn) by 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.