News of meeting cheers investors following suggestions House speaker Boehner has softened position on tax hikes for the rich
Hopes rose Monday for an end to the fiscal cliff crisis as President Barack Obama met Republican House speaker John Boehner at the White House on amid signs of a breakthrough in the fraught budget talks.
A series of automatic spending cuts and tax hikes are set to be imposed two weeks from now unless a political solution is found.
Federal reserve chairman Ben Bernanke and government economists have warned that the US could be plunged back into recession unless a compromise is reached before the January 1 deadline.
Over the weekend, it emerged that Boehner had softened the Republicans’ position on tax hikes for the rich, a key component of Obama’s plan to tackle America’s $16tn debt. News of Monday’s meeting was enough to cheer US investors, with stock markets snapping a three-day losing streak.
Boehner reportedly proposed several major compromises, including raising taxes on those earning over $1m a year – as opposed to the president’s proposed $250,000 threshold – as part of a plan to raise $1tn in higher tax revenues, up from an earlier proposal of $800bn.
The Republican proposal falls far short of the $1.4tn in revenues that Obama has proposed, but comes amid further signs of compromise. Boehner also reportedly agreed to postpone negotiations over US borrowing limits, which must be agreed by February, for one year. In June 2011 the argument over raising the debt ceiling resulted in a historic downgrade of US credit by ratings agency Standard & Poor’s.
Leading Republicans and Democrats are likely to face opposition in their own ranks from any deal as greater details about spending cuts and tax hikes emerge. Republicans moved to temper reports of a breakthrough, and the offer was quickly rejected by some Democrats, who argued that limiting the tax hike to millionaires was too small.
Conservative group Club for Growth also condemned Boehners’ proposal. “First Speaker Boehner offered to raise tax rates after promising not to, and now he’s offering to raise the debt ceiling. Raising tax rates is anti-growth, and raising the debt ceiling is pro-government growth – and this is the Republican position?” said the group’s president Chris Chocola in a statement.
Neither the White House nor the Republicans would comment on the talks. The two sides released identical statement that read: “The president and the speaker are meeting at the White House to continue their discussions about the fiscal cliff and balanced deficit reduction.”
Political analysts saw the talks as a sign of possible compromise with less than two week to go until the end of the year.
Sean West, a US policy analyst at Eurasia Group, a political risk consultancy, wrote in a note to clients: “The political burden is now shifted back to the president, who must be willing to take on his party in order to get a deal Boehner can ultimately pass. We do not think the president will overreach: Obama will work with Boehner to get to a deal.”
The potential breakthrough comes as polling data shows that the US public want compromise. According to the latest USA Today/Gallup Poll, 66% said the two sides should compromise “on their principles and beliefs” on taxes and spending to avert the year-end budget crisis.