Financial News

  • 18 December 2012, 13:47

Fiscal Cliff: Obama Softens Tax Demands

Barack Obama has softened his demand for higher taxes for big earners, in an attempt to narrow differences with Republicans and avoid the "fiscal cliff".

The offer emerged after another round of urgent talks with House Speaker John Boehner on Monday.

Mr Obama's latest plan would seek higher tax rates for households earning over $400k (247k) a year, up from the $250k (154k) level that had been a cornerstone of his re-election campaign.

It proposes $1.2trn from raised taxes over 10 years, and an identical level in spending cuts designed to trim the deficit.

This gets nearer the lower figure of $1trn in new tax revenue - and an equal amount in spending cuts - that Mr Boehner has signalled he would accept.

In return he would agree to raise the debt ceiling for a year.

Mr Obama had been looking for a two-year deal on the amount that the government can borrow to finance its debts.

The latest offer also includes another concession, dropping an earlier proposal to extend a payroll tax cut due to expire at the year's end.

But a final deal to avoid the fiscal cliff is still not certain, meaning an automatic year-end hike in taxes for nearly all wage-earners and deep cuts in defence and in domestic spending are still on the cards.

"Any movement away from the unrealistic offers the president has made previously is a step in the right direction," said Brendan Buck, a spokesman for John Boehner.

"But a proposal that includes $1.3trn in revenue for only $930bn in spending cuts cannot be considered balanced."

If the two sides do manage to strike a deal - which then manages to pass both chambers of Congress - a massive cloud of uncertainty would be removed from the US and global economies.

But politicians in Washington have been warned to prepare for an abbreviated Christmas holiday, with less than two weeks until the end of the year.