Fiscal crisis looms as U.S. Congress reconvenes

The U.S. Congress returned to session for the first time since the election last week, confronting the task of stitching together a compromise on spending and taxes to avoid what's been called the "fiscal cliff," a series of actions starting Jan. 1 that threatens to trigger another recession.

National debt nearing $16.5 trillion US

House Speaker John Boehner, a Republican, speaks at the Capitol in Washington on Nov. 7. (J. Scott Applewhite/Associated Press)

The U.S. Congress returned to session Tuesday for the first time since the election last week, confronting the huge and immediate task of stitching together a compromise on spending and taxes to avoid what's been called the "fiscal cliff," a series of actions starting Jan. 1 that threatens another recession and higher unemployment.

Adding pressure on President Barack Obama and Congress to seek a deal, the Treasury Department reported Tuesday that the federal government started the 2013 budget year with a $120-billion US deficit. That indicated that the U.S. is on a path to its fifth straight $1 trillion-plus deficit.

The question looming over the negotiations is how much ground both sides are willing to give after the nation's voters endorsed the status quo of divided government — a Democratic president and Senate, and a Republican House of Representatives.

Obama, emboldened after his firm re-election victory and Democratic gains in both chambers of Congress, kicked off a series of meetings in Washington this week with labour officials, business executives and congressional leaders to discuss the "fiscal cliff." A news conference on Wednesday will give the president the chance to frame his outlook on the outgoing Congress, which has been criticized as the least productive in recent history.

The president met with labour and progressive groups Tuesday to build support for what he has called a "balanced" plan to reduce the debt while protecting spending priorities. After the meeting, labour leaders said Obama remains committed to preserving tax cuts for middle-class families and ensuring that the wealthiest Americans pay more in taxes.

An Obama meeting on Wednesday with business executives, many of whom supported Republican rival Mitt Romney, aims at enlisting their help in convincing Republicans to support higher taxes on the wealthy.

What the fiscal cliff includes

  • The expiration of Bush-era tax cuts on income, investments, married couples and families with children and inheritances.
  • A $55-billion cut to the Pentagon budget next year and another $55 billion in cuts to domestic programs, including a two per cent cut to Medicare providers.
  • The expiration of unemployment benefits for the long-term jobless and a sharp cut in reimbursements for doctors participating in Medicare.
  • The expiration of President Obama's temporary cut in payroll taxes.
  • The imposition of the alternative minimum tax on some 26 million households.

Source: Associated Press

Obama has also invited the top four leaders of Congress to the White House on Friday for talks, right before he departs on a trip to Asia.

Also hanging over the political landscape is the largely unrelated but distracting revelation of marital infidelity that drove former Gen. David Petraeus to resign as CIA director days after the elections.

Now the scandal has spread to the top U.S. commander in Afghanistan, Gen. John Allen, who is under investigation for alleged "inappropriate communications" with a woman who received threatening emails from Petraeus' former lover.

Seven weeks to deadline

That major distraction aside, Washington politicians have just over seven weeks, including breaks for the Thanksgiving holiday next week and the Christmas holidays, to find a way back from the brink of the "fiscal cliff" — the year-end, economy-jarring expiration of tax cuts Americans have enjoyed for a decade, combined with automatic across-the-board reductions in spending for the military and domestic programs.

That outcome — barring legislative compromise by Jan. 1 — is self-imposed punishment for last year's failure by a bitterly divided Congress and White House to deal with the government's spiraling debt and overhaul its unwieldy tax code. The Congressional Budget Office estimates that the austerity program would reduce the deficit by nearly $700 billion by the end of 2013. But the non-partisan organization also says millions of jobs could be lost, which could knock the U.S. economy back into a recession.

Republicans vs. Obama

A recent poll has suggested that more Americans would blame Republicans than President Barack Obama if Congress fails to reach an agreement on U.S. national debt woes.

The telephone survey from the Pew Research Center and the Washington Post was based on a sample of 1,000 people. It's results suggested that 53 per cent of Americans would blame the Republicans while 29 per cent would blame Obama should Congress fail to strike a deal.

Neither Republicans nor Democrats wanted to sign onto any deal in advance of the November election. Now the task falls to what is known as a lame-duck session of Congress, the outgoing legislature that sits after the election but before the newly elected membership is sworn in early next year.

Obama and his primary antagonist, Speaker of the House John Boehner, the most powerful Republican in Washington, have already begun laying out their positions.

The president demands that taxes go up for American households earning more than $250,000 a year. He also says he is willing to see cuts in government spending, although he has not offered specifics.

Republicans — the low-tax, small-government tea party movement in particular — insist that tax rates not be raised for any income level and instead call for even deeper cuts in spending, although the targets of those reductions are unknown.

At issue is an annual U.S. budget deficit that now is routinely above $1 trillion and a national debt that has risen to near $16.5 trillion.