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U.S. President Barack Obama gestures as he speaks about the ‘fiscal cliff’ at the Business Roundtable, an association of chief executive officers, in Washington, Wednesday, Dec. 5, 2012. (Charles Dharapak/AP)
U.S. President Barack Obama gestures as he speaks about the ‘fiscal cliff’ at the Business Roundtable, an association of chief executive officers, in Washington, Wednesday, Dec. 5, 2012. (Charles Dharapak/AP)

Obama warns Republicans against using debt ceiling in ‘fiscal cliff’ battle Add to ...

President Barack Obama is trying to overwhelm his opponents in the “fiscal cliff” debate.

The President moved quickly Wednesday to quash the notion that Republicans could acquiescence on some of the White House’s demands before the end of the year, and then use the debt ceiling as leverage for a counterattack in the New Year.

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“If Congress in anyway suggests that they are going to tie negotiations to the debt ceiling…I will not play that game,” Mr. Obama told the Business Roundtable in Washington. “We’ve got to break that habit before it starts.”

A year ago, House Republicans forced the White House to blink in a stare-down over the legislated U.S. debt limit, refusing to grant the administration authority to borrow unless it agreed to enact deep and immediate spending cuts. The willingness of lawmakers to use debt default as a bargaining chip rattled international financial markets, and Standard & Poor’s cut the U.S. credit rating over the episode.

But there is talk Republicans may reprise this negotiating strategy to regain advantage in a contest in which the President appears to be winning.

Republicans would accept Mr. Obama’s call to extend lower tax rates for all but the richest 2 per cent of taxpayers, which would blunt much of the “cliff,” a combination of $500-billion (U.S.) in tax increases and $100-billion in spending cuts set for 2013. Negotiations over a broader budget package would then resume in the New Year, with the threat of the debt limit in the background. The Treasury likely is on course to breech the debt ceiling within the first couple months of 2013.

“We have to do something about spending,” Eric Cantor, the Virginia Republican and House majority leader, told reporters Wednesday without mentioning the debt ceiling specifically. “An obsession about taxes will not solve the problem.”

Mr. Obama’s attempt to block the use of the debt ceiling as a negotiating tactic came in front of a group that represents the leaders of the biggest U.S. companies. The Business Roundtable paid for full-page newspaper ads Wednesday calling on politicians to resolve the “cliff” that featured comments from eight chief executives, including General Electric Co.’s Jeffrey Immelt and Xerox Corp.’s Ursula Burns.

“If the last debt ceiling discussion was playing with fire, this time they’re playing with nitroglycerin,” Honeywell International Inc.’s David Cote says in the advertisement. “It’s important to recognize that the stakes have gone up across the board when you combine the debt ceiling with the fiscal cliff.”

Forecasters, including the International Monetary Fund, say the blow to demand that would follow full implementation of the tax increases and spending cuts would cause a recession, and the Bank of Canada said Tuesday that uncertainty about future fiscal policy is holding back the U.S. economy.

The potential tax increases mostly are represented by temporary cuts implemented by former president George W. Bush, who had to agree to cap the duration of the reductions at a decade to get the measures through Congress.

Mr. Obama agreed to extend the Bush rates in 2010 for two years as an economic stimulus measure. He now is prepared to make those tax rates permanent for all but the wealthiest Americans. That would shift the highest tax rate to 39.6 per cent from the current 35 per cent and the second-highest rate to 36 per cent from 33 per cent. Those rates would apply to households that earn more than $250,000, or individuals who earn more than $200,000.

The President says this shift would generate $1-trillion over a decade. Republicans oppose higher rates, but have said they will support raising $800-billion by closing loopholes and limiting tax breaks. Mr. Obama also would curb tax deductions.

However, he told business leaders that the Republican goal of raising nearly $1-trillion without raising rates is only “theoretically” possible. He said the politics of eliminating tax incentives for charity and other deductions means a more realistic estimate of the revenue that could be gained from adjusting tax breaks is at best $400-billion. If the goal is to shrink the budget deficit and constrain the growth of the debt, the wealthiest must pay tax at a higher rate, the President said.

“The holdup right now is, Speaker Boehner took a position the day after the campaign that we’re willing to bring in revenue, but we’re not willing to increase rates,” Mr. Obama said. “I’ve explained to you why we don’t think that works,” he added. “If we can get the leadership on the other side to acknowledge that framework…we can probably solve this in a week.”

Mr. Obama’s appeal to a group that’s traditionally aligned with the Republican Party was an attempt to keep the pressure on his adversaries in the “cliff” talks. As Mr. Obama picked apart Mr. Boehner’s proposal, Republicans called on the President to meet them face to face to discuss specifics.

“I’ll be here and available at any moment to sit down with the President if he gets serious about solving this problem,” Mr. Boehner told reporters on Capitol Hill.

That’s unlikely to happen just yet; the President is too busy raising public support for his position. When asked in an interview Tuesday whether he would meet with Mr. Boehner, Mr. Obama replied that the “issue right now is not me sitting in a room.”

Meanwhile, the White House budget office has asked all federal agencies for information to finalize contingency plans for automatic spending cuts due to go into effect in January should the Obama administration fail to reach agreement to avert the reductions.

White House spokesman Jay Carney on Wednesday said the administration remained confident of reaching a deal to avoid so-called “sequestration” but that the Office of Management and Budget “must take certain steps to ensure that the administration is ready to issue such an order should Congress fail to act.”

Mr. Carney told reporters that OMB earlier this week “issued a request to federal agencies for additional information to finalize calculations on the spending reductions that would be required.”

With files from Reuters

Follow on Twitter: @CarmichaelKevin

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