Fiscal cliff crisis forces Obama to abandon Hawaii trip
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Thursday 27 December 2012
With only days to go before the US goes over the “fiscal cliff”, President Obama cut short his Christmas break in Hawaii to arrive back in Washington DC in a last-ditch attempt to hammer out an alternative to the more than $600bn in looming spending cuts and tax rises.
Lawmakers, meanwhile, were put on notice about a related challenge after the Treasury Secretary, Tim Geithner, sounded a warning about the country's debt limit. US government borrowing is set to hit the debt ceiling on Monday, he said in a letter to Congress today, adding that the Treasury will soon begin implementing "extraordinary measures" that will give the US around two months before it runs the risk of a calamitous default.
However, that time-frame is subject to uncertainty, Mr Geithner said, given the impasse in the fiscal cliff negotiations, as the White House and Congressional Republicans struggled to reach a deal.
If an agreement cannot be reached, more than $600bn in spending cuts and tax hikes will automatically come into force in early January and, it is predicted, tip the US back into recession.
But even as Mr Obama and members of both the House and the Senate hurried back to Washington, it emerged that ordinary Americans had become more pessimistic about the prospects of a solution that would spare another blow to their already battered wallets. Only 50 per cent think it likely that a deal will be reached, against 48 per cent who believe it is unlikely, according to a new Gallup poll.
That contrasts with a poll earlier in the month in which 57 per cent were confident about the prospect of a compromise between President Obama and the man leading the negotiations on behalf of the Republicans, House Speaker John Boehner. Talks between the two broke down last week amid continued disagreement over taxing the wealthiest Americans.
With no comprehensive agreement covering both the various Bush-era tax breaks that are due to expire at the end of the year and the upcoming cuts to government spending likely to be struck in the time remaining, the President mooted a narrower pact to protect the majority of Americans before he left for his Hawaiian break on Friday.
The President's scaled-down plan would freeze tax rates for households earning less than $250,000 a year (£155,000) while extending jobless benefits for more than two million Americans. "That's an achievable goal," Mr Obama said last week.
Any pact, however, is expected to face challenges in Congress, after Mr Boehner, facing defections on his own flank, failed to push through a House measure backing tax hikes only on those earning $1m a year or higher.
The medium-term consequences of going over the fiscal cliff – a term coined by Federal Reserve chairman Ben Bernanke – could be dire for what remains a weak economy. A long period of disagreement between the two parties could, according to estimates published by the independent Congressional Budget Office, cause the US economy to contract by 0.5 per cent in the first half of 2013 as it heads into recession.
Oscar Pistorius trial: Paralympian sick again after photographs of Reeva Steenkamp's body are shown in court
Missing Malaysia Airlines Flight MH370: US pushes search towards vast expanse of the Indian Ocean
Seth Rogen compiles list of all the celebrities he’s got high with
Oscar Pistorius trial: Photographs of Paralympian splattered in blood shown in court
Missing Malaysia Airlines Flight MH370: Focus shifts west as Indian Ocean becomes latest search area for the aircraft and its passengers
Katie Hopkins continues campaign to become Britain's most hated talking head with poorly timed Bob Crow tweet
No EU referendum under Labour: Ed Miliband to reveal that vote on membership is ‘unlikely’ in next Parliament if party wins power
Grace Dent: Who cares if she spells it Barraco Barner? Gemma Worrall is more employable than some bookish arts graduate
Europeans have ‘got whiter’ due to natural selection in past 5,000 years, scientists say
Fracking is turning the US into a bigger oil producer than Saudi Arabia
The rise of Ukip: Study warns Labour that Eurosceptic party's electoral base now 'more working class than any of the main parties'
- 1 Tony Benn meets Ali G: Watch Labour veteran burn Sacha Baron Cohen
- 2 Women do experience two different types of orgasm, study reveals
- 3 Tony Benn dead: Veteran Labour politician passes away at 88
- 4 Istanbul protesters take 'Ellen selfie' from the back of a police van
- 5 Gauthier Soho has ranted against 'food blaggers' - so can we really trust online reviews?
iJobs Money & Business
£35000 - £43000 per annum + Bonus and Benefits: Harrington Starr: A global lea...
£50000 - £60000 per annum: Harrington Starr: Linux Systems Administrator - UNI...
£32000 - £36000 per annum + generous benefits: Pro-Recruitment Group: * TAX * ...
£37000 - £40000 per annum + £20000 benefits package: Pro-Recruitment Group: **...