President Barack Obama said rich Americans and companies should pay more taxes beyond this week’s accord to avoid the spending cuts and tax increases known as the fiscal cliff as Congress seeks other ways to pare the deficit.
“Spending cuts must be balanced with more reforms to our tax code,” Obama said in his weekly radio and Internet address. “The wealthiest individuals and the biggest corporations shouldn’t be able to take advantage of loopholes and deductions that aren’t available to most Americans.”
Congress passed legislation just after the fiscal cliff deadline of Dec. 31 that raised taxes on the wealthiest Americans while extending tax cuts for lower incomes and delaying automatic spending cuts until March 1. Markets rallied in response to the agreement, even as Obama and congressional Republicans face a new struggle over raising the U.S. government’s debt ceiling.
Obama, who on Jan. 2 signed the law raising income-tax rates on couples to 39.6 percent for annual income above $450,000, reiterated in his address that he would refuse to negotiate with Republicans over borrowing authority.
“One thing I will not compromise over is whether or not Congress should pay the tab for a bill they’ve already racked up,” Obama said. “If Congress refuses to give the United States the ability to pay its bills on time, the consequences for the entire global economy could be catastrophic.”
The U.S. reached its $16.4 trillion legal debt limit on Dec. 31, and the Treasury Department began using extraordinary measures to finance the government. It will exhaust that avenue as early as mid-February, the Congressional Budget Office says.
“The last time Congress threatened this course of action, our entire economy suffered for it,” the president said in the address from Hawaii, where he is on vacation. He is scheduled to return to Washington tomorrow.
After partisan gridlock last brought the government to the brink of default in August 2011, the stock market fell and Standard & Poor’s cut the nation’s credit rating to AA+ from AAA. House Speaker John Boehner, an Ohio Republican, withdrew from negotiations on July 22, 2011, and the S&P 500 Index fell more than 16 percent in the next 11 trading days.
Bond investors were unrattled. Yields on 10-year U.S. Treasury notes declined from 2.96 percent on July 22 to 2.56 percent on Aug. 5, 2011, the day of the S&P downgrade. Yields continued to drop, reaching 1.72 percent on Sept. 22 of that year.
House Ways and Means Committee Chairman Dave Camp offered assurances yesterday that, even with the disagreements between congressional Republicans and the White House, lawmakers would raise the $16.4 trillion debt limit in time to avoid missing payments on U.S. obligations.
“Absolutely, we’re going to not default,” Camp said on Bloomberg Television’s “Political Capital with Al Hunt” airing this weekend. “That’s just not even part of the issue.”
Camp, in the Republicans’ weekly address today, said the U.S. government “spends too much and wastes too much,” and “the spending problem is getting worse, not better.” Camp also advocated changes to the tax code.
“We have to start to work on real solutions to return accountability to our tax code by eliminating special-interest loopholes,” Camp said in the address. “I believe in a simple principle: when it comes to the tax code, everyone should play by the same rules.”
The fiscal cliff tax deal produced a split in the House Republican leadership. Boehner and Budget Committee Chairman Paul Ryan of Wisconsin voted for the bill. Majority Leader Eric Cantor of Virginia and Whip Kevin McCarthy of California, the party’s No. 2 and 3 leaders in the chamber, voted against it.
Camp voted in favor of the agreement.
Still, rebellious Republicans chose not to challenge Boehner in his re-election as House speaker, perhaps because a possible candidate, Cantor, wasn’t willing to take on the role. He received three votes for speaker from those protesting Boehner.
While Boehner sought, during his first year as speaker, a consensus approach to solving debt and budget crises, Cantor became a spokesman for anti-tax House Republicans in favor of limited government.
Boehner and Cantor have recently presented a united front. They made a point of always appearing together during key moments: after Boehner’s compromise plan to raise taxes only on those earning more than $1 million failed on Dec. 20 to get Republican votes in the House, Cantor faced the cameras next to the speaker.
With the fiscal cliff agreement, U.S. stocks rallied for the week, sending benchmark indexes to their biggest gains in 13 months.
All 10 industry groups in the Standard & Poor’s 500 Index advanced in the holiday-shortened week. Bank of America Corp. and Caterpillar Inc. climbed at least 6.6 percent, pacing gains among financial and industrial companies. An index of consumer stocks jumped to a record as Ross Stores Inc. and TJX Cos. announced same-store sales that topped estimates. General Motors Co. and Ford Motor Co. rallied more than 5.4 percent as auto sales beat forecasts.
The S&P 500 rose 4.6 percent to 1,466.47, the highest level since December 2007. The benchmark gauge had the best three-day start of a year since 2009. The Dow Jones Industrial Average added 497.10 points, or 3.8 percent, to 13,435.21. Both measures posted the best weekly increase since December 2011. The Russell 2000 Index of small companies and the S&P Midcap 400 Index reached all-time highs after jumping 5.7 percent and 5.2 percent, respectively.