American treasury secretary Timothy Geithner predicted on Sunday that Republicans will eventually agree to raise taxes to stave off the “fiscal cliff”, but House leader John Boehner didn’t indicate that the two parties were close to reaching a compromise.
“I was just flabbergasted,” the House speaker told Fox News Sunday.
President Barack Obama demands $1.6 trillion in tax increases over a period of ten years when spending would be reduced by $400 billion, including cuts to Medicare, the entitlement program that pays health care for the elderly.
The president needs Republican support in order to pass a budget in the House of Representatives, where the opposition is in the majority. Obama’s own Democrats control the upper chamber of Congress, the Senate.
“I’ve just never seen anything like it,” said Boehner on Sunday before characterizing the administration’s proposal as “nonsense.”
In last year’s budget negotiations, the president and Boehner had reportedly agreed to $800 billion in revenue increases over a similar ten-year period. Those talks collapsed when the administration asked for an additional $400 billion in tax increases, something Boehner knew he couldn’t get through his conference, which is opposed to tax hikes altogether.
Unless the two parties do a deal before the end of this year, $100 billion in spending cuts and $440 billion in tax increases will be automatically enacted. Economists believe that this “fiscal cliff” will plunge the country back into recession.
Comprehensive entitlement and tax reform is needed to achieve fiscal consolidation in the long term. Democrats have so far refused to cut social spending while Republicans, though willing to do tax reform, are against increasing tax rates.
Asked on NBC News’ Meet the Press whether there can be a deal, Geither insisted,
The only thing standing in the way of that would be a refusal by Republicans to accept that rates shouldn’t have to go up on the wealthiest Americans. I don’t really see them doing that.
But that only applies to the Bush-era income tax cuts that were extended last year but are set to expire in January. Democrats want to preserve the lower rates only for incomes under $250,000 while Republicans favor extending all of the current tax rates.
There is also the president’s payroll tax credit and several other deductions that are slated to be retired.
Moreover, Democrats made the same argument last year — that Republicans were holding middle-class tax relief “hostage” to low tax rates for the rich — and it didn’t persuade the latter to acquiesce.
“Here’s the problem,” Boehner told Fox News. “When you go and increase rates, you make it more difficult for our economy to grow.”
Besides, the speaker argued, if Republicans agreed to give the president $1.6 trillion in new tax revenue, “He’s going to spend it,” not use it to reduce the nearly $1 trillion deficit, let alone pay down the debt, which stands at over $16 trillion.
Boehner scoffed at Geithner’s suggestion that Congress would cede its power over the debt ceiling to the president.
“Silliness,” he labeled the idea of the legislature giving up its debt authority
I’ve made it clear to the president that every time we get to the debt limit, we need cuts and reforms that are greater than the increase in the debt limit. It’s the only way to leverage the political process to produce more change than what it would have left alone.