US Fiscal Cliff Nearer as Republican Talks Break Down

Negotiations to prevent the impending US ‘fiscal cliff’ that looms at the end of the year have broken down, after efforts by Republican leaders in the US House of Representatives to pass a back-up plan to prevent most of the looming tax increases collapsed amid a conservative backlash.

House speaker, John Boehner, left the efforts in confusion, as he abruptly closed the House for the holidays, having failed to win support from his fellow Republicans for a plan to let tax rates rise for the wealthiest Americans.

The proposal represented Boehner’s alternative to negotiating a broader package with President Barack Obama and would have spared most Americans from significant tax increases set to take effect next year. However, as it would have entailed significant tax increases for about 400,000 families with incomes over US$1m conservatives refused to support Boehner, undermining his negotiating power.

“The House did not take up the tax measure today because it did not have sufficient support from our members to pass,” said Boehner. “Now it is up to the president to work with Senator [Harry] Reid on legislation to avert the fiscal cliff,” he added, referring to the Democratic Senate majority leader.

Later, at a news conference, Boehner said that he was ready to negotiate further with President Barack Obama in the hope of reaching a deal before the year-end. “How we get there, God only knows,” he added.

Only 11 days now remain to reach a deal and Reid said that the next sitting of the Senate is not scheduled until 27 December. From the start of 2013, more than US$500bn in automatic new tax increases and spending cuts are scheduled to begin taking effect, threatening to stifle the modest US economic recovery and trigger a further recession. The White House responded with a short statement, in which it pledged that President Obama would work with Congress in the days ahead to conclude a deal.

Obama has reduced his target for higher tax revenues from US$1.6 trillion to US$1.2 trillion and has also amended the attachment point at which higher taxes would apply to household incomes from a figure of US$250,000 cited during his successful re-election campaign to US400,000. He has also proposed more than US$800bn in spending cuts over the next decade, of which around half would come from the Midicare and Medicaid programmes. Boehner’s offer, had it proved successful, would have generated around US$940bn in higher taxes over the next decade.

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