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Geithner Sets Congress Talks as Republicans Seek Cuts

By Richard Rubin & Mike Dorning - 2012-11-29T15:28:11Z

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Geithner Bringing Real Spending Numbers to Congress

Treasury Secretary Timothy F. Geithner arrived at the Capitol today to face demands from Republican leaders to spell out spending cuts, after President Barack Obama won backing from some corporate executives to raise taxes as part of a deal to avert the fiscal cliff.

Geithner began his round of meetings with each of the top four leaders in Congress in Senate Majority Leader Harry Reid’s office. He ignored questions from reporters about what the administration might offer in negotiations.

The separate sessions with lawmakers are being held a day after chief executives from more than a dozen U.S. corporations shuttled from the Capitol to the White House and pressed for an agreement to prevent triggering automatic spending cuts and tax increases on Jan. 1.

“I came out of this meeting optimistic, extraordinarily optimistic that Washington broadly understands the importance of getting something done,” Deloitte LLP Chief Executive Officer Joe Echevarria said last night after spending more than an hour with Obama and his top aides at the White House.

Several of the CEOs who met with Obama said the group could support raising taxes on high incomes including their own if it were part of a plan that also reins in spending.

“I think it was hard for anybody personally to be in that room and suggest that 5 percent more tax, or you pick a number, was going to dramatically change our life,” Echevarria said.

Economic Threat

The president and Congress are negotiating a deal to avoid more than $600 billion in automatic spending cuts and tax increases set to begin Jan. 1. The Congressional Budget Office has warned that failure might push the economy into recession next year and boost the unemployment rate to 9.1 percent in the fourth quarter of 2013, compared with 7.9 percent now.

Obama telephoned House Speaker John Boehner last night, said a White House official who asked for anonymity to discuss the private call. The conversation occurred after Obama met with the business executives who were pushing for action.

Obama and Boehner, an Ohio Republican, earlier yesterday both said they were eager to reach a compromise before the end of the year, without publicly offering concessions. Amid the negotiations, Obama plans to have a private lunch today at the White House with Mitt Romney, the Republican presidential nominee whom he defeated in the Nov. 6 election.

Separate Meetings

Geithner, Obama’s top negotiator, and the president’s congressional liaison, Rob Nabors, are scheduled to meet today individually with Reid, Boehner, House Minority Leader Nancy Pelosi, and Senate Minority Leader Mitch McConnell.

“We’ll have to see how the day plays out,” Nabors said in response to questions about whether Obama will offer spending cuts beyond what was in his proposed budget.

Geithner, 51, has said he plans to leave office next month after securing a deficit compromise, his last deal with Congress in a four-year tenure that also has included shepherding the Dodd-Frank financial rules overhaul to passage.

Democrats are insisting that Americans in the top 2 percent of income pay higher taxes. Republicans say they are open to higher revenue only if the U.S. overhauls the tax code and entitlement programs.

Republicans have “the expectation that the White House team will bring a specific plan for real spending cuts,” said Michael Steel, a spokesman for Boehner.

White House press secretary Jay Carney, responding via Twitter, pointed to the president’s 2013 budget proposal, which included spending cuts and higher-income tax increases.

Economic Outlook

The deadline to avoid the fiscal cliff is approaching as the U.S. economy expanded at a “measured pace” in recent weeks, the Federal Reserve said in its Beige Book business survey yesterday.

Gains in consumer demand and housing were tempered by a slowdown in manufacturing. The Fed said that seven of 12 districts reported “either slowing or outright contraction in manufacturing” as some contacts “expressed concern about the outlook for 2013, in part, due to the uncertainty regarding the outcome of the fiscal cliff.”

Positive remarks by Boehner and Obama helped U.S. stocks erase early losses yesterday. The Standard & Poor’s (SPX) 500 Index closed up 0.8 percent at 1,409.93 in New York after earlier slumping 1 percent. The S&P 500 added 0.4 percent .

Market Reaction

“The market is at the mercy of the fiscal cliff until we get some sort of resolution,” Liz Ann Sonders, the New York- based chief investment strategist at Charles Schwab Corp., which has $1.9 trillion in client assets, said yesterday in a telephone interview.

Ten-year Treasuries pared early gains, with rates down less than one basis point at 1.63 percent, and the Dollar Index reversed an earlier advance to fall 0.1 percent.

Obama yesterday again urged Congress to extend all but the top income tax rates even before a broader deal is reached to give certainty to middle-income families as the holiday season approaches. Obama wants to let Bush-era tax cuts expire for households earning more than $250,000 a year.

Erskine Bowles, a co-chairman of Obama’s 2010 deficit- reduction commission, said that based on his meeting with the president on Nov. 27 he believed there’s some “flexibility” in the president’s call to let George W. Bush -era cuts on tax rates expire for the wealthiest Americans. Still, he said he thought it was unlikely that Obama and Congress would reach a deal by year’s end to avert the fiscal cliff.

Broad Agreement

Executives interviewed after their White House meeting said they emphasized the need for a broad agreement that will cut the deficit and provide certainty, even if it means they may pay more in taxes.

“Everything was discussed, taxes, entitlements,” AT&T Inc. Chief Executive Officer Randall Stephenson said outside the White House. Stephenson backed Romney in the presidential campaign, according to Federal Election Commission records.

Marriott International Inc. Chief Executive Officer Arne Sorenson said his message to the president and his team was, “You have to do something that is real and substantive today on both the spending and the revenue side.”

Sorenson, who also donated to Romney, said he stressed the need to avoid “small down payments that leave the uncertainty hanging out over 2013, because the uncertainty will be a threat to the economy as well.”

Economic Momentum

Echevarria, an Obama donor, said that without a deal to provide certainty “we would lose great economic momentum.”

Three out of four global investors in a Bloomberg Global Poll conducted on Nov. 27 said they expect Obama and congressional leaders to reach a short-term agreement. The survey of 862 Bloomberg customers who are investors, traders or analysts found that 40 percent expect financial markets to rise after a short-term tax-and-spending deal. Only 6 percent of investors anticipate a political impasse.

Oklahoma Representative Tom Cole said he advised fellow Republicans in closed-door meetings that they should accede to Obama’s demand that Congress extend the tax cuts for American families with annual incomes of less than $250,000 and for individuals who make less than $200,000 every year.

“We are not going to raise taxes on those people” so “we ought to go make that abundantly clear to everybody, take them out of the negotiations” on a broader deal to overhaul the tax code and cut spending, Cole told reporters.

Democrats and their allies cited Cole’s statement as a sign that the Republican opposition to tax increases on top earners was thawing. Still, Boehner has rejected that approach.

Obama has public support for his position, according to an ABC News/Washington Post poll. Sixty percent of those surveyed Nov. 21-25 said they favored raising taxes on those with incomes of $250,000 a year or more. Two-thirds opposed raising the Medicare eligibility age as a way to cut entitlement spending. The poll had a margin of error of plus or minus 3.5 percentage points.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net; Mike Dorning in Washington at mdorning@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

Enlarge image

U.S. Treasury Secretary Timothy Geithner

Tomohiro Ohsumi/Bloomberg

Treasury Secretary Timothy F. Geithner arrives at the Capitol to face demands from Republican leaders to spell out spending cuts, after President Barack Obama won backing from some corporate executives to raise taxes as part of a deal to avert the fiscal cliff.

Obama Says Agreement Possible on Budget Framework