Rivals dig in as US ‘fiscal cliff’ drama debuts

WASHINGTON (Reuters) – Both sides in the US “fiscal cliff” debate stood their ground yesterday as they gathered in Washington for the first time since the elections, with a fundamental tax dispute preventing a broader compromise on deficit reduction.

The White House made clear it was ready to negotiate with Republicans on taxes and spending, but a spokesman for Democratic President Barack Obama said he will not budge on insisting that the wealthy’s tax rates must rise in 2013.

The president wants to extend low individual income tax rates beyond year’s end for 98 per cent of Americans, but he will not agree to extending them for the top 2 percent of earners, said White House spokesman Jay Carney at a news conference.

On the Senate floor, Republican Leader Mitch McConnell said his party was open to discussing new government revenues, but not raising tax rates. “We’re … not about to further weaken the economy by raising tax rates and hurting jobs,” he said.

The defiant remarks came as Congress returned from a post-election break with seven weeks left to deal with the “fiscal cliff,” a convergence of urgent tax and spending issues that, if mishandled, could plunge the economy into another recession according to the non-partisan Congressional Budget Office.

Generally weak since the elections, US stock markets were flat yesterday, with nervous investors eyeing Washington amid scepticism about lawmakers’ ability to make fiscal decisions.

About half of Americans doubt that Obama and congressional Republicans will be able to reach an agreement to resolve the “fiscal cliff,” according to a poll released yesterday by the Pew Research Center for the People and the Press.

A regular survey of small business sentiment yesterday showed hopes of a pick-up in sales, but widespread uncertainty among owners about business conditions in the next six months. The National Federation of Independent Business said its optimism index rose 0.3 point to 93.1 in October.

“We’re three weeks away from serious negotiations on the fiscal cliff,” said Greg Valliere, chief political strategist at Potomac Research Group, a Washington policy analysis firm.

“This is a photo-op week, next week is Thanksgiving, then lawmakers will straggle back to Washington to examine what staffers have come up with. The dominant theme in these three weeks will be trial balloons,” he said.

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