Obama says fiscal cliff deal in sight, not done yet

US president is "hopeful that Congress can get it done, but it's not done"; deal coming together to avert tax hikes at midnight.

December 31, 2012 21:22
3 minute read.
US President Obama speaks with PM Netanyahu

US President Obama speaks with PM Netanyahu 370. (photo credit: White House Photo by Pete Souza)


Dear Reader,
As you can imagine, more people are reading The Jerusalem Post than ever before. Nevertheless, traditional business models are no longer sustainable and high-quality publications, like ours, are being forced to look for new ways to keep going. Unlike many other news organizations, we have not put up a paywall. We want to keep our journalism open and accessible and be able to keep providing you with news and analyses from the frontlines of Israel, the Middle East and the Jewish World.

As one of our loyal readers, we ask you to be our partner.

For $5 a month you will receive access to the following:

  • A user experience almost completely free of ads
  • Access to our Premium Section
  • Content from the award-winning Jerusalem Report and our monthly magazine to learn Hebrew - Ivrit
  • A brand new ePaper featuring the daily newspaper as it appears in print in Israel

Help us grow and continue telling Israel’s story to the world.

Thank you,

Ronit Hasin-Hochman, CEO, Jerusalem Post Group
Yaakov Katz, Editor-in-Chief

UPGRADE YOUR JPOST EXPERIENCE FOR 5$ PER MONTH Show me later Don't show it again

WASHINGTON - US President Barack Obama on Monday said it appeared a deal on the "fiscal cliff" was within sight but it was not complete yet.

"Today it appears that an agreement to prevent this New Year's tax hike is within sight, but it is not done," Obama said at the White House. "There are still issues left to resolve, but we're hopeful that Congress can get it done, but it's not done."

Be the first to know - Join our Facebook page.

US Senate leaders were hammering out a last-minute deal to avoid the cliff, but it was still unclear if rank-and-file lawmakers would back the agreement, particularly those in the Republican-led House of Representatives.

A deal to avert the fiscal crisis was said to be in the works in the Senate that would raise tax rates on household income above $450,000, said a source familiar with the talks. The agreement would permanently extend the lower tax rates for those below the $450,000 cut off. These lower tax rates have been in place for all taxpayers since the Bush administration.

US stocks rose modestly on the news, with the benchmark Dow Jones industrial average up less than one percent at 13,011.

With only hours to go before the midnight deadline, the source said, the Senate deal would permanently fix the alternative minimum tax and postpone for an undetermined period the automatic, across-the-board federal spending cuts in defense and domestic programs.

The estate tax on inherited assets would increase under the Senate proposal. Corporate tax benefits would be extended, including the research and development tax credit, and unemployment insurance benefits for the long-term jobless would be extended for a year, the source said.

Dividends and capital gains would be taxed at 23.8 percent for high-income households under the Senate package. That would be an increase from the existing rate of 15 percent.

A Democratic aide cautioned that no deal was complete until all the elements were addressed and said it was unsure whether the package being negotiated could pass the Senate.

Republican Leader Mitch McConnell, walking into the Capitol after working late into the night on Sunday, told reporters he had been speaking with Democratic Vice President Joe Biden.

Senate leaders and Biden have been working to forge a pact that would have a chance of passage in both chambers.

Higher taxes ahead

From wage-earners to investors, Americans were all but certain to face higher payroll taxes and investment income taxes even if Congress can pull off a deal to avoid the fiscal cliff.

The source made no mention of a tentative Senate compromise to extend Obama's payroll tax holiday that Americans have enjoyed for two years. Support for such an extension seems to have faded away, in part because the payroll tax funds Social Security. If it ends, the current 4.2 percent payroll tax rate paid by about 160 million workers will rise to the previous 6.2 percent rate after Dec. 31.

That will be the most immediate hit to consumers, who will feel a squeeze on their wallets. Economists have warned that a recession could result if the full sweep of the fiscal cliff is allowed to take hold in January.

At midnight, low tax rates enacted under former President George W. Bush in 2001 and 2003 are set to expire. This remains the most contentious part of the ongoing negotiations, which has many other facets, including investment income tax increases.

A main sticking point has been whether to raise taxes on the wealthy. Republicans had opposed any tax rate hike, while Democrats for most of this year argued that household incomes above $250,000 should see higher tax rates.

If no deal is reached, the tax increases that will result from plunging off the fiscal cliff could be curbed later with retroactive legislation, but some economic damage seemed likely, dependent in part on the reaction of financial markets.

Related Content

Rashida Tlaib on interview about Arab-Israeli Conflict (August 13, 2018).
August 14, 2018
First Muslim congresswoman says will vote against military aid to Israel