Obama Cuts Short Vacation to Attempt Fiscal Cliff Deal

Obama vacation

Washington D.C. slowly started to return work yesterday ahead of the looming “Fiscal Cliff” that would see the largest tax hikes since 1968 and massive military spending cuts kick in on January 1.

There was a sign that there may be a way through deadlock in Congress, Republican House of Representatives Speaker John Boehner urged the Democrat-controlled Senate to act to pull back from the cliff and offered to at least consider any bill the upper chamber produced.

President Obama is cutting short his Christmas vacation in Hawaii and will return Thursday to attempt to revive the budget crisis talks, which stalled last week.

But the White House and Republicans are still far apart, as hopes for legislation to prevent the economy from tumbling off the fiscal cliff switch to the Senate.

Democrats control a majority in that chamber but still need some support from Republicans across the aisle for a likely attempt to raise taxes on the wealthy.

A senior administration official told reporters traveling with Obama in Hawaii that senior Republican leaders in Congress, Senator Mitch McConnell and Boehner, should step up to head off the looming tax and spending hit.

“It’s up to the Senate Minority Leader not to block a vote, and it’s up the House Republican leader, the Speaker of the House … to allow a vote,” the official said.

Months of congressional gridlock on how reduce the deficit and rein in the nation’s $16 trillion federal debt have begun to affect ordinary Americans.

Shoppers might have spent less this holiday season for fear of looming income tax increases and reports of lacklustre retail holiday sales added to the urgency for a deal. U.S. stocks fell on Wednesday, dragged lower by shares of retail companies.

To avoid defaulting on the national debt if the budget crisis spins out of control, the Treasury Department announced measures essentially designed to buy time to allow Congress to resolve its differences and raise the debt borrowing limit.

Obama flies back from Hawaii overnight and is due in the White House on Thursday morning.

Speaker Boehner and his House Republican leadership team said in a statement that “the Senate must act first.”

That puts the ball in the court of the Democrats in the Senate, which is likely to base any legislation on a bill it passed earlier this year to continue tax breaks for households with incomes below $250,000.

A spokesman for Senate Majority Leader Harry Reid issued a strongly worded statement calling on Republicans to “drop their knee-jerk obstruction.”

“The Senate bill could pass tomorrow if House Republicans would simply let it come to the floor,” the spokesman said.

A Senate bill would likely contain an extension of expiring unemployment benefits for those who have been out of work for extended periods.

With the 435 members scattered throughout the country because the House is in recess, House Republican leaders scheduled a conference call for Thursday with members to possibly discuss bringing the chamber back into session to deal with the fiscal cliff.

The budget fight is not just about taxes, however.

The country faces $109 billion in across-the-board spending cuts starting in January unless a deal is reached to either replace or delay them. Democrats want to switch the spending cuts to tax increases for the most part.

House Republicans have passed a bill to stop the military portion of the spending cuts and place the entire burden on domestic activities, including some social safety net programs.

But the main focus is on how to stop tax hikes on January 1.

Obama himself recently offered to raise the threshold to $400,000, before negotiations with Boehner broke off.

Boehner and other Republican leaders said in a statement that if the Senate sends the House new fiscal cliff legislation, “The House will then consider whether to accept the bills … or to send them back to the Senate with additional amendments.

“The House will take this action on whatever the Senate can pass, but the Senate first must act.”

But even if a handful of Senate Republicans support Democrats on a measure to avoid the worst of the fiscal cliff, time is short. When the Senate returns on Thursday it is due to work on a disaster aid bill to help New York and New Jersey recover from Superstorm Sandy and other measures.

All 191 House Democrats might have to team up with at least 26 Republicans to get a majority if the bill included tax hikes on the wealthiest Americans, as Obama is demanding.

Some of those votes could conceivably come from among the 34 Republican members who are either retiring or were defeated in the November elections and no longer have to worry about the political fallout.

An alternative is for Congress to let income taxes go up on everyone as scheduled. Then, during the first week of January, lawmakers would strike a quick deal to reduce them except on people in the highest brackets.

They could also pass a measure putting off the $109 billion in automatic spending cuts that most lawmakers want to avoid.

Once the clock ticks past midnight on December 31, no member of Congress would have to vote for a tax increase on anyone – taxes would have risen automatically – and the only votes would be to decrease tax rates for most Americans back to their 2012 levels.

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