Obama and Republicans Trade Offers to Avert Fiscal Crisis

U.S. President Barack Obama
Barack Obama, U.S. president. Photographer: Kevin Dietsch/Pool via Bloomberg

President Barack Obama and House Republicans traded budget proposals intended to avert spending cuts and tax increases scheduled to begin in January.

Obama and House Speaker John Boehner spoke today as they exchanged offers, according to a Republican congressional aide and an administration official, both of whom spoke on condition of anonymity to discuss the private negotiations.

Obama, interviewed on ABC News, said, “I remain optimistic” that a budget agreement will be reached. He said he is “pretty confident” Republicans will give in to his demand for higher tax rates for top earners.

If Congress does nothing, more than $600 billion in tax increases and spending cuts, the so-called fiscal cliff, will start taking effect in January.

The Obama administration reduced its demand for new tax revenue from $1.6 trillion to $1.4 trillion, said a second Republican congressional aide who wasn’t authorized to speak publicly about the talks.

That person and a third Republican staff member said Boehner’s counteroffer kept the same $800 billion revenue figure he proposed earlier, to come from limiting tax deductions and not from higher tax rates. The aides, who spoke on condition of anonymity, said the offer included only minor changes from Republicans’ previous proposal to protest what they viewed as a lack of movement by the White House.

White House officials didn’t respond to requests for comment.

Balanced Approach

“We sent the White House a counteroffer that would achieve tax and entitlement reform to solve our looming debt crisis and create more American jobs,” said Michael Steel, a spokesman for Boehner. “We’re still waiting for the White House to identify what spending cuts the president is willing to make as part of the balanced approach he promised the American people.”

Earlier, Jay Carney, Obama’s chief spokesman, refused to provide details about what negotiators were discussing.

“I don’t think it is helpful to give hourly or daily readouts” of the conversations, Carney said. He declined to comment on “speculation about what was said and spin about what it means.”

Carney said Obama has provided specific cuts in a September 2011 proposal to a congressional supercommittee considering plans to reduce the deficit and in the budget he presented to Congress earlier this year.

Christmas Holiday

Also today, Senate Majority Leader Harry Reid said Congress still has time to enact a plan before the Christmas holiday although it won’t be easy.

“I think it’s going to be extremely difficult to get it done before Christmas, but it could be done,” Reid, a Nevada Democrat, told reporters.

Reid spoke a few hours after Boehner reiterated his call for Obama to offer proposed spending cuts as part of a deficit-reduction package.

“Where are the president’s spending cuts?” Boehner, an Ohio Republican, said on the House floor.

Asked today about prospects for a budget deal, House Republican Whip Kevin McCarthy of California told reporters that Obama “changes what he asks for so I get less confident.”

Stocks, Bonds

Stocks rose. The Standard & Poor’s 500 Index advanced 0.7 percent to 1,427.84 at 4 p.m. in New York, after rallying as much as 1.1 percent earlier. The Dow increased 78.56 points, or 0.6 percent, to 13,248.44, its highest level since Oct. 22. Treasuries fell, as the benchmark 10-year note yield increased three basis points, or 0.03 percentage point, to 1.65 percent at 3:40 p.m. in New York, according to Bloomberg Bond Trader prices.

If Congress doesn’t act, tax rates for income at all levels would rise, along with taxes on estates, capital gains and dividends.

The Congressional Budget Office has said if nothing changes, the stalemate probably would lead to a recession in the first half of 2013. Obama and Boehner are trying to replace the immediate deficit reduction with more gradual tax and spending changes.

More than 150 chief executive officers, including JPMorgan Chase & Co.’s Jamie Dimon and Goldman Sachs Group Inc.’s Lloyd Blankfein, called on Obama and Boehner to compromise on a budget deal that would include new tax revenue and spending cuts.

Without a “principled compromise” soon, the chief executives warned in a letter today, the U.S. will suffer “long-lasting, if not permanent” economic damage.

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