US & Canada

Fiscal cliff: White House presses Republicans on tax rises

Grover Norquist, photographed 11 February 2012 in Washington
Image caption Lobbyist Grover Norquist says some Republicans are having "impure thoughts" on taxes

The White House has increased pressure on Republicans to allow a rise in tax rates on the wealthy in a deal to avoid the forthcoming "fiscal cliff".

Limiting tax loopholes and deductions, as some Republicans have suggested, would not yield a "balanced approach", spokesman Jay Carney said on Monday.

Tax cuts passed under George Bush are set to expire on 1 January.

Without action, tax rises and spending cuts on 1 January could send the fragile US economy back into recession.

The so-called fiscal cliff, which would take about $600bn (£347bn) out of the economy, was intentionally engineered as part of a 2011 compromise between President Barack Obama and Congressional Republicans.

Negotiators then hoped it would spur the two sides to reach a long-term solution to the US budget deficit.

Revenue row

With the deadline now looming, Democrats are demanding that tax rates on high earners be allowed to rise in order to raise revenue, in what Mr Obama calls a "balanced approached" to deficit reduction.

Republicans would prefer to see cuts to social programmes. All sides agree middle-class tax rates should remain low.

While most Americans enjoyed the Thanksgiving holiday, high-level budget negotiations continued at the weekend.

Mr Obama spoke with Republican House Speaker John Boehner and Democratic Senate Majority Leader Harry Reid.

The back-and-forth continued in public on Monday, with Republican House Majority Leader Eric Cantor saying: "We were not re-elected to raise taxes or increase marginal rates."

In an interview on MSNBC television, he called on Mr Obama and the Democrats to outline a plan to reduce spending on social programmes such as the Social Security pension programme and the Medicare healthcare plan for over-65s.

The White House, meanwhile, released estimates showing the typical middle-class household would see taxes go up by $2,200 if the fiscal cliff is not averted.

The Democrats have called for immediate legislation to avert those tax rises.

In recent days some Republicans have shown willingness to close loopholes or limit tax deductions, while remaining steadfastly opposed to raising any tax rates.

'Impure thoughts'

On Monday, Mr Carney said the White House would consider such changes but argued they would raise insufficient revenue.

"The reality is closing loopholes and ending deductions as an alternative to raising rates on the top earners... sounds good, but you have to look at the context of the actual proposals," he told reporters.

"It's not necessarily realistic to assume that they can achieve the kind of revenue target that's necessary for a balanced approach, or solution, to these problems."

Grover Norquist, a powerful anti-tax lobbyist, acknowledged on Monday that some Republicans were having "impure thoughts" after several prominent lawmakers showed willingness to budge on their vow never to raise taxes.

Mr Norquist is the head of Americans for Tax Reform, which holds sway over Republicans through a pledge most have signed vowing never to vote for any measure that would yield an increase in tax revenue.

Senators Saxby Chambliss, Lindsey Graham and Bob Corker and Representative Peter King have publicly distanced themselves from Mr Norquist's pledge.

President Obama wants to halt looming automatic tax increases for households earning less than $250,000.

In a report published on Monday, White House economists warned that if lawmakers cannot agree to this measure, it would reduce consumer spending in 2013 by nearly $200bn.

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