Obama ups pressure on Republicans over 'fiscal cliff'

US President Barack Obama speaking on NBC Meet the Press

US President Barack Obama has increased pressure on Republicans to accept a deal aimed at stopping the country going over a "fiscal cliff".

He blamed them for the deadlock, saying their "overriding theme" was protecting tax breaks for the rich.

But efforts to reach a deal suffered a setback as Senate leaders missed their own deadline to reach a compromise.

Failure to resolve the crisis by 31 December will mean steep spending cuts and tax rises.

This has raised fears that reduced consumer spending could trigger a US economic slowdown, which in turn could damage the global economy.

The current stand-off has its roots in a failed 2011 attempt to tackle the government debt limit and budget deficit. Republicans and Democrats agreed then to postpone difficult decisions on spending until the end of 2012, and imposed a threat of compulsory cuts if no deal was reached by 31 December.

That is also the date that tax cuts introduced by former President George W Bush are due to expire, though both parties want them extended for most Americans.

Analysts say that even if a deal is reached on the fiscal cliff, it will do little to reduce the original problem of the deficit and government debt limit, raising the prospect of further political in-fighting early next year.

Ideological divide

Democrat Senate leader Harry Reid and his Republican counterpart Mitch McConnell were locked in negotiations over the weekend.

According to the Washington Post, they set themselves a deadline of 15:00 local time (20:00 GMT) to reach a compromise agreement, but the deadline passed without any sign of a deal.

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The offers that I've made to them have been so fair that a lot of Democrats get mad at me”

End Quote Barack Obama

The two senators appeared to admit not long before the deadline that negotiations were at a standstill.

Senator Reid said the Democrats were as yet unable to make a counter-offer to a Republican offer, and that there were still major differences between the two sides.

Senator McConnell said he had asked Vice-President Joe Biden for help in breaking the deadlock.

In his interview with NBC's Meet the Press, recorded on Saturday and broadcast on Sunday, Mr Obama said the priority was to ensure taxes do not rise for middle-class families, saying that would "hurt our economy badly".

"That's something we all agree on. If we can get that done, that takes a big bite out of the 'fiscal cliff'," he said.

But Republican and Democratic leaders remain divided over core ideological issues about tax and government funding.

There is also debate over where to set the threshold for tax rises. Democrats say the Bush era tax cuts should be extended for all Americans except the richest - those with annual earnings of more than $250,000 (£155,000).

Republicans - some of whom have pledged never to vote for increased taxes - say the deficit is a consequence of excessive government spending.

They want the tax threshold set higher, at around $400,000, and for revenue to be raised by economic growth and cuts in social security and other services states are legally bound to provide.

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America's reckless politicians may still take the country over the cliff into an uncertain land where recession looms”

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Mr Obama said he had made significant compromises already by offering to cut or reform welfare programmes in exchange for raising taxes for the highest earners, and criticised Republicans for not accepting the offer.

"They say that their biggest priority is making sure that we deal with the deficit in a serious way, but the way they're behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected. That seems to be their only overriding, unifying theme," he said.

"The offers that I've made to them have been so fair that a lot of Democrats get mad at me."

He said that that if all else failed and taxes did go up, he would introduce a bill to cut them when Congress reconvenes on 4 January.

But House Speaker John Boehner hit back, insisting that Republicans had made every effort to reach a deal.

"Americans elected President Obama to lead, not cast blame," he said in a statement. "The president's comments today are ironic, as a recurring theme of our negotiations was his unwillingness to agree to anything that would require him to stand up to his own party."

End to benefits

The term fiscal cliff refers to the combination of almost $600bn of tax rises and spending cuts due to come into force on 1 January if Congress fails to pass new legislation.

What is the fiscal cliff?

  • On 1 January 2013, tax increases and huge spending cuts are due to come into force - the so-called fiscal cliff
  • Deadline was put in place in 2011 to force president and Congress to agree ways to save money over the next 10 years
  • Date coincides with expiry of Bush-era tax cuts, which would affect all income groups and many businesses
  • Fear is that raising taxes while massively cutting spending will have a huge impact on households and businesses
  • Experts believe it could push the US into recession, and have a global impact on growth

Sweeping Bush-era tax cuts will expire, eventually affecting people of all income levels, and many businesses.

The changes include:

• A 2010 payroll tax cut, the expiration of which would prompt immediate wage-packet cuts

• Some 25m people could move to a different tax band, potentially increasing individual tax bills by more than $3,000

• Cuts to benefits for the long-term unemployed, which could mean more than two million Americans immediately stopped receiving payments

• Cuts to compensation for doctors treating patients on federal healthcare programmes

• Inheritance taxes to rise from 35% to 55% on properties worth more than $1m, a measure opposed by Republicans as well as Democrats from agricultural states who say it would punish farming families

While some of the impact would be felt almost immediately, other effects would take longer to filter through. This could damage America's recent fragile economic recovery and alarm global markets.

In addition, the compulsory cuts mandated in 2011 will come into force, affecting about $109bn in military and domestic budgets.

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