What is up?
That’s the question that will dominate the “fiscal cliff” talks heading into the weekend.
In those heady days after the election, when U.S. President Barack Obama and House Leader John Boehner appeared on the verge of becoming golf buddies, there was a feeling that common ground could be found by allowing the highest tax rates to rise, but not all the way back to their Clinton-era levels.
So, instead of a jump back to 39.6 per cent (the highest rate before George W. Bush’s tax cuts in 2001) from the current 35 per cent, maybe both sides could find satisfaction in an increase to 37 per cent?
It made a lot sense to those of us up here in the cheap seats. But that option appeared to vanish as quickly as it emerged.
Treasury Secretary Timothy Geithner said explicitly on Sunday that the Obama administration was resolute in its belief that the top two tax brackets must return to Clinton-era levels, a shift the White House says would raise $1-trillion (U.S.) over a decade. Mr. Obama said the same in an interview with Bloomberg Television on Tuesday, and then elaborated on his reasoning in a speech to the Business Roundtable on Wednesday. And with that, all talk of Mr. Obama and Mr. Boehner becoming friends stopped. The chill was back on.
Ah, but that was Wednesday. As Washington emptied for the weekend, the talk was once again about a Goldilocks solution to higher tax rates.
“There are two irreducible minimum requirements for us,” Vice-President Joe Biden said Friday, according to the pool report. “The top brackets have to go up – this is not a negotiable issue; theoretically, we can negotiate how far up.”
Up on Capitol Hill, reporters were taking note of Mr. Boehner’s refusal to rule out increasing the top bracket to 37 per cent. “There are a lot of things that are possible to put the revenue the President seeks on the table,” Mr. Boehner said. A little later, House Minority Leader Nancy Pelosi indicated she has a softer line on rates than that of the White House. “It’s not about the rates,” Ms. Pelosi said, according to Politico. “It’s about the money…It’s about getting the money to reduce the deficit, to grow the economy and to unleash that power.”
It’s difficult to assess whether this speck of middle ground off in the distance is real or imagined. Mr. Boehner insisted that there was “no progress to report” and declared that the “White House has wasted another week.”
How much more of this can people take? The preliminary reading of the University of Michigan’s consumer confidence index plunged to 74.5 in early December from 82.7 in November, a move economists attributed to growing awareness of the “fiscal cliff” talks. A survey by RBC Capital Markets this week showed that only 29 per cent of participants weren’t paying attention to the “cliff” negotiations, compared with 39 per cent in November and 55 per cent back in June.
Consumer sentiment has been strong of late. A dip in the confidence of household spenders to match the well-publicized wariness of corporate executives is the opposite of a good omen.