Fiscal crisis looms as US Congress reconvenes for battle over taxes, spending

By Steven R. Hurst

THE ASSOCIATED PRESS

WASHINGTON — The U.S. Congress clanks and grinds back into 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 deficit. That indicated that the U.S. is on a path to its fifth straight $1 trillion-plus deficit.

The question looming over the impending 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.

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.

Before Congress gets to the fiscal issues, the House on Tuesday is expected to pass and send to the president legislation that would exclude U.S. airlines from the requirements on emissions that the European Union has sought to impose on all planes flying to and from the European continent.

The House vote comes a day after the EU proposed a one-year freeze on the carbon emissions charges for non-European airlines. The emissions program has met strong opposition from airlines and governments outside Europe, including the United States, China and India.

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.

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.

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.

Both sides have voiced the potential for co-operation, but they face a confrontation over a series of expiring tax cuts approved during the George W. Bush presidency and tough, across-the-board spending cuts set to take place because lawmakers failed to reach a deal to reduce the federal debt.

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.

Since the election last week, Boehner has suggested a new willingness to bring Republicans behind an increase in government revenue, but not one that is funded by higher tax rates on upper-income Americans. Instead, he suggests tinkering with the tax code and eliminating loopholes that the wealthy take advantage of to lower their taxes.

Both sides know they must find a deal, because the lack of one will only deepen voter disgust with a government that has ground to a near standstill over the past decade.

15:08ET 13-11-12