Republicans say Obama is risking new recession

Battle over budget as spending cuts and tax increases loom

Feeling the pressure, top Republicans sought today to blame Barack Obama for what they say has, at best, been glacial movement towards resolving their differences over a deficit-busting budget deal that must be done by the end of this month to avoid automatic tax increases and spending cuts.

“We’ve got some serious differences,” said a doleful House Speaker, John Boehner, referring to a 15-minute telephone call he had with Mr Obama on Tuesday evening following their face-to-face talks on Sunday. “The President and I had a pretty frank conversation about just how far apart we are.”

Eric Cantor, the Majority Leader in the House, said the more that Mr Obama “slow-walks” the negotiations, the closer America will get to the so-called fiscal cliff. That is the moment on 1 January when higher tax rates would automatically apply to almost all Americans and deep cuts in federal spending would kick in – a double gut punch that some economists say would push the US back into recession.

Mr Cantor told Republicans to be prepared to stay in Washington until Christmas Eve and to return for the period up to the new year to be able to vote on a possible deal. There had been hopes that the stand-off could be resolved by the end of next week. For now, however, Mr Obama still intends to leave for Hawaii before Christmas.

The political stakes for both sides are extremely high (as they are for the economy) and some public desk-pounding is to be expected. Mr Boehner may need to paint as grim a picture as possible if he is to persuade his rank-and-file members eventually to move with him towards a compromise. In the public forum Mr Obama may be winning the argument for now, notably on his demand for higher taxes for the rich.

A new Bloomberg poll showed almost half of Republicans accepting that it is time to end tax cuts for the rich while extending them for the middle classes, as Mr Obama proposes. The President’s overall approval rating ticked up to a respectable 53 per cent, from 49 per cent in September.

The Business Roundtable, an influential lobbying group, urged the Republicans to back down on the issue, and Lloyd Blankfein, the CEO of Goldman Sachs, also voiced support for some increase in tax revenues.

Since the weekend, the White House has reduced the tax revenue increase it is seeking over 10 years from $1.6 trillion to $1.4trn. It reportedly has also offered to include a change in corporate tax rates in any final deal, something the business community would also welcome. For now, however, the Republicans are pushing harder for more from the President on cutting spending on social programmes such as Medicare.

They also hurl back whenever they can the President’s mantra that a final deal must be balanced, saying that means including cuts in spending at least as big as increases in tax revenue.

“The President seems to think that if all he talks about are taxes, and that’s all reporters write about, somehow the rest of us will magically forget that government spending is completely out of control,” Senator Mitch McConnell, the Minority Leader, said.

If the Republicans feel at a disadvantage now, they also know that if a short-term deal is done that does not suit them, they will have a chance to resume the fight with fresh leverage in early spring when Mr Obama will be forced to seek authorisation once again to raise the debt ceiling. He  has warned the Republicans against using the ceiling as a cudgel in the deficit squabble; they are unlikely to pay heed.