US Democrats and Republicans bickered on Thursday over whether to raise taxes on the wealthiest Americans as crunch negotiations on avoiding the so-called fiscal cliff stalled, AFP reported on Friday.
This is not good for South Africa and other international stock markets as positive news on the fiscal cliff had been driving markets up this week.
“Fiscal cliff” is the popular shorthand term used to describe the conundrum that the US government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.
Among the laws set to change at midnight on December 31, 2012, are the end of last year’s temporary payroll tax cuts (resulting in a 2 percent tax increase for workers), the end of certain tax breaks for businesses.
Others include shifts in the alternative minimum tax that would take a larger bite and the end of the tax cuts from 2001-2003, and the beginning of taxes related to President Barack Obama’s health care law.
At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 will begin to go into effect.
According to Barron’s, over 1000 government programs – including the defense budget and Medicare are in line for “deep, automatic cuts.”
Republican speaker John Boehner met Treasury Secretary Timothy Geithner, after a Wednesday phone call with President Barack Obama, but warned there had been “no substantive progress” in averting drastic tax hikes and spending cuts.
“I’ve got to tell you that I’m disappointed in where we are and disappointed in what’s happened over the last couple of weeks,” he said, urging the White House to “get serious” about cutting federal spending, including entitlements.
Senate Majority Leader Harry Reid, shot back that Democrats have seen no “serious offer” from Republicans, who oppose raising tax rates and are divided about a quick agreement on keeping taxes low for middle-income families.
Taxes are to rise on most American households by about $2, 200 and automatic spending cuts will kick in on the first day of 2013 if lawmakers do not pass legislation that lowers the ballooning deficit, the White House estimates.
There is broad agreement that Bush-era tax cuts should remain for everyone making less than $250, 000 per year but, while Obama’s Democrats want the cuts to expire for the wealthiest two percent, Republicans oppose such tax hikes.