President Barack Obama said he’s “modestly optimistic” Congress can pass a bill to avert more than $600 billion in tax increases and spending cuts set to start Jan. 1.
“We’re now at the last minute,” the president told reporters Friday after meeting with congressional leaders at the White House for just over an hour. “The American people are not going to have any patience for a politically self-inflicted wound to our economy.”
The president will appear on NBC’s “Meet the Press” on Dec. 30, the network said, hours before the House plans to hold an unusual Sunday session.
Obama said that Senate Majority Leader Harry Reid, a Nevada Democrat, and Republican leader Mitch McConnell of Kentucky agreed to work on “a potential agreement” in the Democrat-controlled chamber.
If that can’t be done, Obama called for a vote on a plan he outlined Dec. 21 that would raise taxes on annual income above $250,000. Such a plan would need Democratic support to pass the Republican-controlled House.
McConnell said he and Reid hope “we can come forward as early as Sunday and have a recommendation that I can make to my conference and the majority leader can make to his conference.”
Moving the focus to the Senate meets a request by Republican House Speaker John Boehner of Ohio for how he wanted to proceed. If Senate lawmakers can pass such a measure and send it to the House for a Dec. 30 vote, it will be a critical test of Boehner’s ability to deliver enough votes.
The Standard & Poor’s 500 Index fell for a fifth day amid uncertainty over whether the lawmakers will succeed.
Reid said on the Senate floor, “Whatever we come up with is going to be imperfect” though the leaders “have an obligation to do the best we can.”
Reid and McConnell haven’t agreed to any details of a joint plan, said a Senate Democratic aide who requested anonymity to discuss the talks.
Obama’s Dec. 21 proposal would be a limited measure that would raise taxes on annual income over $250,000 and continue expanded unemployment insurance benefits. The president also said Friday such a plan should create a path toward deficit reduction and economic growth.
House Minority Leader Nancy Pelosi said the tenor of the conversation led by the president was “let’s have the Senate put something together and see where that takes us.” The California Democrat said, “Candor is constructive and I think it moved us forward.”
Boehner’s spokesman Brendan Buck said in a statement that the speaker “told the president that if the Senate amends the House-passed legislation and sends back a plan, the House will consider it.” The House passed its version of a plan to avert the so-called fiscal cliff earlier this year.
Also attending today’s meeting with the congressional leaders was Treasury Secretary Timothy Geithner, said an administration official who spoke on condition of anonymity.
The S&P 500 fell for a fifth day, by 1.1 percent to 1,402.45 at 4 p.m. in New York. The benchmark Treasury 10-year yield declined three basis points, or 0.03 percentage point, to 1.71 percent at 3:26 p.m. in New York, according to Bloomberg Bond Trader prices.
Without action by Congress the spending cuts and tax increases, known as the fiscal cliff, are set to start taking effect in January. That could lead to an economic slowdown in early 2013, according to the Congressional Budget Office.
Democratic Senator Kent Conrad of North Dakota told reporters there was “no question” that Republicans were slow-walking the negotiations. It will be politically easier for them to reach a deal in 2013 when the tax provisions Obama is seeking will be considered a tax cut, not an increase on top earners, he said.
Senator Tom Harkin, an Iowa Democrat, said he’s looking for a final agreement late in the day Jan. 3 or 4.
“You just need the situation of the speaker having been re-elected for another couple years,” Harkin said. “Psychologically I think that’s the way it works.”
If Congress does nothing, taxes will increase in 2013 by an average of $3,446 for U.S. households, according to the nonpartisan Tax Policy Center in Washington. Tax filing for as many as two-thirds of U.S. taxpayers could be delayed into at least late March. Defense spending would be cut, and the economy would probably enter a recession in the first half of 2013, according to the Congressional Budget Office.
In addition, tax rates on ordinary income, wages, capital gains, dividends and estates would increase in 2013. The top income tax rate would go to 39.6 percent from 35 percent, and the 2 percentage point cut in the payroll tax would lapse.
Dividends would be taxed as ordinary income, and the top capital gains rate would increase to 20 percent from 15 percent. Capital gains and dividends of top earners will face another 3.8 percent tax from the 2010 health care law.
Tax cuts enacted in 2001 and 2003 are scheduled to expire Dec. 31, though the effects of the higher tax rates and federal spending cuts would accumulate over a matter of months. Congress could reverse them by acting retroactively in 2013.
The House passed a bill in August that would extend the expiring tax cuts for all income levels, and another bill Dec. 20 to replace the automatic spending cuts with other reductions. The House hasn’t addressed some expiring provisions, including a scheduled pay cut to doctors under Medicare and expanded unemployment insurance.
The Senate voted in July to extend income tax cuts for one year for individual income up to $200,000 and income of married couples up to $250,000. During talks with Boehner earlier this month, Obama offered to raise that threshold to $400,000.
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