The first face-to face meeting between President Barack Obama and congressional leaders about the so-called fiscal cliff yielded optimism from participants with few details on how they would resolve their disagreements.
House Speaker John Boehner and White House Press Secretary Jay Carney both described yesterday’s meeting as “constructive.” The meeting in the Roosevelt Room at the White House featured the same leaders who have tried and failed to bridge their differences on fiscal policy before.
“It’s a fundamentally different tone,” said Patrick Griffin, who was President Bill Clinton’s chief congressional lobbyist. “That is really a hopeful sign. But we have to travel a long ways here to see what the four corners of the deal are.”
Moving from the meeting to a deal will require consensus on the size and components of any agreement, which could require Republicans to accept tax increases they oppose and Democrats to back entitlement program cuts they don’t want. If they can come to agreement, the negotiators must then turn their concepts into legislation and advance them through Congress.
“They said what you’d hope for them to say at this point, which is that this is something we can do; we’re committed to do it; we want to do it as soon as we can; we know the stakes are very high,” Treasury Secretary Timothy F. Geithner said on Bloomberg Television’s “Political Capital With Al Hunt” airing this weekend.
Geithner said he thinks an agreement is “doable within several weeks.”
The fiscal cliff is the $607 billion combination of automatic spending cuts and tax increases scheduled to take effect in January. Lawmakers are trying to avert the cliff to prevent a short-term shock to the economy and reach an agreement on long-term deficit reduction.
A Senate Democratic aide said Democrats emphasized in the meeting that their priority is allowing tax cuts to expire for top earners. Democrats were optimistic, the aide said, because Republicans didn’t immediately reject that rate increase.
Such an increase could be paired with short-term savings from entitlement programs, a temporary end to automatic spending cuts and a process for overhauling the tax code and entitlements in 2013.
The aide spoke on condition of anonymity to discuss the private meeting.
As the White House talks wrapped up, U.S. stocks rose. The Standard & Poor’s 500 Index went up as much as 1 percent after leaders emerged from the meeting. The index trimmed those gains, closing up 0.5 percent to 1,359.88 at 4 p.m. New York time. The Dow Jones Industrial Average gained 45.93 points, or 0.4 percent, to 12,588.31, trimming its weekly drop to 1.8 percent. It capped a fourth week of losses, the longest losing streak since August 2011.
Treasuries rose, reflecting strong demand for U.S. debt worldwide, with 10-year note yields touching a 10-week low. The benchmark 10-year yield fell one basis point, or 0.01 percentage point, to 1.58 percent at 4:59 p.m. New York time, according to Bloomberg Bond Trader prices.
Participants in financial markets think it’s almost impossible that the negotiations will fail and that the U.S. will go over the fiscal cliff, said John Engler, president of the Washington-based Business Roundtable, an association of chief executives of large corporations.
“The people who aren’t in government think there’s no way in the world they’d be that stupid to let that happen,” Engler, a former Republican governor of Michigan, said in an interview yesterday. “Those of who us who watch government and who are here, close to the scene, look over there and say, ’I don’t know.’”
Obama is insisting on higher taxes for top earners and Republicans are refusing to raise rates, leaving negotiators with arithmetically complex and politically fraught choices. Obama leaves for Asia today and Congress is out of Washington until Nov. 26 for its Thanksgiving recess.
Senate Majority Leader Harry Reid, who was in the meeting, said leaders will meet with Obama the week after Thanksgiving.
“This isn’t something that we’re going to wait until the last minute” to get done, said Reid, a Nevada Democrat.
While tax questions will be central in the fiscal talks, the two sides also will consider a down payment on replacing automatic spending cuts should discussions on a broader plan fail, according to congressional aides.
In the meeting, Boehner told Obama that they should try to set revenue and spending targets with statutory requirements to meet the goals, said a Boehner aide who spoke on condition of anonymity. Staffers will be working while Congress and Obama are out of Washington to prepare ideas for negotiators to consider, leadership aides in both parties said.
In addition to Reid and Boehner attending the meeting were Senate Minority Leader Mitch McConnell, a Kentucky Republican, and House Minority Leader Nancy Pelosi, a California Democrat. Also in the meeting were Geithner, Vice President Joe Biden and White House Chief of Staff Jack Lew.
The president supports higher taxes for top earners mixed with some spending cuts. Republicans want to extend expiring tax cuts for all income levels and are demanding an overhaul in 2013 of entitlement programs and the tax code.
“My hope is that this is going to be the beginning of a fruitful process where we’re able to come to an agreement,” Obama said before the meeting.
Pelosi said that she would favor reducing the budget deficit by $4 trillion over the next decade. The meeting, she said, produced a “plan of action, an understanding of what we wanted to achieve.”
While insisting on higher taxes, Obama has shown openness in recent days. He and Geithner said rates must increase without specifying that the top rate must return to the 39.6 percent in effect when Clinton left office.
Democrats and some Republicans are starting to talk publicly about a more modest increase in upper-income tax rates.
One idea would be to raise Obama’s $250,000 income threshold for a tax increase to $500,000 or $1 million and increase the current 35 percent top rate to 37 percent.
“Will John Boehner really blow up a deal for a 1 percentage point increase above $1 million?” said Peter Orszag, who was Obama’s budget director earlier in his term and is now a Bloomberg View columnist. “The administration has made it clear there has to be at least some increase in marginal tax rates.”
Representative Steve King, an Iowa Republican, said this week that Boehner, an Ohio Republican, could probably get a revenue package through the House that curbs deductions and credits for the highest earners and slightly raises rates above the current 35 percent level, as long as it remains short of the 39.6 percent that Obama wants.
“It may not have to be the 39-and-a-half percent number, it could be something less than that,” King said.
Still, a cordial first meeting could become contentious once the talks move from deficit-reduction goals to proposals for meeting them, said Representative Richard Neal, a Massachusetts Democrat.
“As long as you keep the argument very general, everybody acknowledges the challenge,” said Neal, who is a member of the Ways and Means Committee. “But when you get to specifics, it becomes very different.”