Dec 27, 2012 / 7:35 am
WASHINGTON - President Barack Obama was cutting short his holiday and returning to Washington on Thursday as no deal appeared in sight to avoid the year-end "fiscal cliff" of higher taxes and deep spending cuts that could spin the still-fragile back into a recession. The treasury secretary warned that the government would hit its borrowing limit on Monday, the final day of the year.
The U.S. appears to be headed over the fiscal cliff, Senate Democratic Leader Harry Reid said Thursday. He criticized his counterpart in the House of Representatives, Speaker John Boehner, for not calling House members back to work: "They are not here." He said Boehner cared more about keeping his position when the new Congress comes in Jan. 3.
Consumer confidence fell to its lowest monthly level since August, largely on concerns over the fiscal cliff, the Conference Board reported Thursday.
Wall Street trading was mixed Thursday morning.
On Wednesday, Treasury Secretary Timothy Geithner told Congress that he would take "extraordinary measures as authorized by law" to postpone a government default. But he said uncertainty over the outcome of the fiscal cliff negotiations made it difficult to determine how much time those measures would buy.
Congress was not expected to return until Friday. In recent days, Obama's aides have been consulting with Reid's office, but Republicans have not been part of the discussions, suggesting that much still needs to be done before Congress can pass a deal, even a small one, by Monday.
At stake are tax cuts that expire on Dec. 31 and revert to the higher rates in place during the administration of President Bill Clinton in the 1990s. That means $536 billion in tax increases that would affect nearly all Americans. In addition, the military and other federal departments would have to cut $110 billion in spending.
The changes are part of a long-delayed need for the government to address its chronic deficit spending.
While economists have warned about the impact of such a massive and abrupt shift, both the Obama administration and Congress appear to be proceeding as if they have more than just four days left.
Congress could still act in January in time to retroactively counter the effect on most taxpayers and government agencies, but chances for a large deficit reduction package would likely be put off.
Geithner's news on the government about to hit its $16.4 trillion borrowing limit has brought more pressure to the process. Obama wants an increase in the borrowing limit as part of any agreement to avoid the fiscal cliff, but Republicans want concessions in return.
Only Congress can raise the limit on the amount of debt the U.S. can accumulate. In August 2011, the rating agency Standard & Poor's stripped the government of its prized AAA bond rating because it feared that America's dysfunctional political system couldn't deliver credible plans to reduce the federal government's debt and meet its debt obligations.
A major challenge in the fiscal cliff negotiations is taxes. Obama has wanted the current tax cuts to stay in place for most Americans while letting taxes go higher for the wealthiest ones.
House Republican leaders on Wednesday urged the Democratic-controlled Senate to consider or amend a House-passed bill that extends all existing tax rates. "The Senate first must act," they said.
But Reid's office insisted that the Republican-controlled House act on Senate legislation passed in July that would raise tax rates only on incomes above $200,000 for individuals and $250,000 for couples.
Meanwhile, Obama has been pushing for a variant of that Senate bill that would include an extension of jobless aid and some spending reductions to prevent the steeper, broader spending cuts from kicking in.
Even if the Senate acts, Boehner would have to let the bill get to the House floor for a vote. The chances of accomplishing that by Dec. 31 were slim.
Amid the standoff, Geithner advised Congress on Wednesday that the administration will begin taking action to prevent the government from hitting its borrowing limit. In a letter to congressional leaders, Geithner said accounting measures could save approximately $200 billion.
That could keep the government from reaching the debt limit for about two months. But if Congress and the White House don't agree on how to avoid the "fiscal cliff," Geithner said, the amount of time before the government hits its borrowing limit is more uncertain.
Whenever the debt ceiling hits, however, it is likely to set up yet another deadline for one more budget fight between the White House and congressional Republicans.
Clearing the way for a higher debt ceiling was supposed to be part of a large deal aimed at reducing deficits by more than $2 trillion over 10 years with a mix of tax increases and spending cuts. But chances for that bargain fizzled last week when conservatives sank Boehner's legislation to let tax increases affect only taxpayers making $1 million or more.
Another potential showdown is pending. A renewed clash over spending could come in late March, since spending authority for much of the government expires on March 27.
Associated Press writer Jim Kuhnhenn contributed.
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