Last updated: November 30, 2012 12:16 am

US talks to avert fiscal cliff sour

House Speaker John Boehner of Ohio calls on a reporter during a news conference on Capitol Hill in Washington, Friday, Nov. 9, 2012. Boehner said any deal to avert the so-called fiscal cliff should include lower tax rates, eliminating special interest loopholes and revising the tax code.©AP

House Speaker John Boehner

US talks to avert the fiscal cliff turned sour after Republicans in Congress rejected what they dubbed a “completely unbalanced and unreasonable” offer from the White House in a round of meetings on Capitol Hill.

One Republican aide in the House of Representatives said Tim Geithner, the Treasury secretary, presented a plan over the decade for $1.6tn in tax increases, $400bn in spending cuts, at least $50bn in new stimulus and a “permanent” lift in the US borrowing limit.

The bid by the White House closely tracks its 2013 budget proposal, released in February, meaning Barack Obama – still on a high after winning re-election – has so far been unwilling to make any major concessions.

Republicans believe the tax increases are too high and would damage the drivers of job creation in the economy, and that the spending reductions are too few and do little to tackle the high long-term cost of government health and pension programmes. They also insist that a higher debt ceiling should be conditional on much deeper spending cuts.

Following his meeting with Mr Geithner and Rob Nabors, a top White House budget negotiator, John Boehner, the House speaker, lamented “no substantive progress” and warned there was a “real danger” of the US plunging off the fiscal cliff.

But the Obama administration blamed Republican intransigence on taxes for the impasse. “Right now, the only thing preventing us from reaching a deal that averts the fiscal cliff and avoids a tax hike on 98 per cent of Americans is the refusal of congressional Republicans to ask the very wealthiest individuals to pay a higher tax rate,” said one White House spokeswoman.

The downbeat picture was in contrast to the more optimistic tone in statements by Mr Obama made in the aftermath of the November 6 election, as well as by Republicans and Democrats in Congress, suggesting compromise could be achieved.

Both Democrats and Republicans still say they are confident they can reach a deal by the end of the year. But negotiating details of an agreement on tax and spending policy that has deeply divided them for more than two years is proving difficult.

Mr Boehner, who described the meeting with Mr Geithner on Thursday as “frank” and “direct”, also spoke with Mr Obama for nearly half an hour on the phone on Wednesday night.


The fiscal cliff explained

What is a fiscal cliff and what does it mean for the US economy?

Mr Boehner and other Republicans in Congress had demanded a detailed plan on curbing the cost of health and pension programmes from Mr Geithner at Thursday’s meeting but said none had materialised and they concluded Democrats were not “serious” about spending cuts.

“I’m disappointed in where we are. I’m disappointed in what’s happened,” said Mr Boehner.

The dire picture was completed by remarks by Mr Boehner on the need to raise the US borrowing limit by February next year, in which he reiterated his stance that the size of the debt ceiling increase should be matched by an equal amount of spending cuts. This condition was at the root of the budgetary stalemate that led the US to the brink of default as well as a credit rating downgrade in August 2011.

Jay Carney, the White House press secretary, responded that he was “struck” by Mr Boehner’s remarks. “Asking for a political price for Congress to do its job, to ensure that the United States of America pays its bills and does not default for the first time in its history, is deeply irresponsible,” Mr Carney said.

Democrats and the White House want a debt limit increase included in any deal, but Republicans see this as one of their main points of leverage, and are holding back.

The latest round of talks in Congress had the potential to jolt the negotiations to avert the fiscal cliff – a mix of spending cuts and tax increases due to hit the US economy a little more than a month from now, probably plunging it into recession. Mr Boehner did say that the basic framework of a deal – with a down payment on deficit reduction through revenue increases and spending cuts followed by broader fiscal reform next year – had been settled.

In depth: US fiscal cliff

US Capitol

The White House and Congressional leaders are embarking on high-stakes talks to avoid a looming fiscal cliff

But Republicans have not accepted Mr Obama’s demands for higher tax rates on the rich, which Democrats have placed as a key condition to any agreement. Without such a commitment to raising the income tax rate for families earning more than $250,000, many Democrats and the White House have been unwilling to put forth detailed plans for reform in government health and pension programmes sought by Republicans.

This impasse prompted a round of recriminations in Congress.

Mitch McConnell, the top Republican in the Senate, was among the sharpest critics of the White House on Thursday. “To date, the administration has remained focused on raising taxes and attending campaign-style events, with no specific plans to protect Medicare and Social Security or reduce our national debt in a meaningful way,” he said after his own meeting with Mr Geithner. “Today, they took a step backward, moving away from consensus and significantly closer to the cliff,” he said.

Democrats fired back, with Harry Reid, the Senate majority leader, saying that Republicans had only proposed “happy talk” when it came to increasing revenue, by insisting it should be limited to capping tax deductions.

“We’re still waiting for a serious offer from the Republicans,” said Mr Reid. “We’re hoping that they can agree to the tax revenue we’re talking about, and that is tax rate increases. And then . . . we’ll be happy to talk about entitlements.”

Additional reporting by Stephanie Kirchgaessner

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