Obama insists on tax hike for rich as part of fiscal deal

(Reuters) - President Barack Obama said on Friday he was prepared to compromise with Republicans to avert a looming U.S. fiscal calamity, but insisted a tax increase for the rich must be part of any bargain.
Obama, who was re-elected on Tuesday, reminded Republicans that his approach to avoiding steep tax hikes and spending cuts due in January, which could trigger another recession, had just won the backing of Americans at the polls. His spokesman said he would veto any deal that did not include an extra contribution from the wealthiest. Obama invited congressional leaders to the White House next Friday to discuss the issue, the most pressing challenge as the president prepares to starts his second term in office. He will also hold a news conference on Wednesday. John Boehner, the Republican speaker of the House of Representatives, repeated his party's commitment not to raise anyone's tax rates as part of a deal to address the crisis. He too claimed a mandate from the elections, in which voters gave Republicans continued control of the House. The statements showed the two men, who have been divided on the issue for two years, were still far apart, leaving doubts over whether the "fiscal cliff" could be averted. Congress is expected to address it when it reconvenes next week for a post-election lame-duck session. "Boehner and Obama are using softer tones, but the substance of what they're saying hasn't changed very much, and it doesn't look like there's been any movement from the last time they had a budget discussion," said Stan Collender, a former congressional budget aide. The automatic across-the-board budget cuts due in January were scheduled in August 2011 as part of a deal to raise the U.S. debt ceiling. Aimed at cutting the federal budget deficit, the planned measures could take an estimated $600 billion out of the economy and severely hinder economic growth. OBAMA SEEKS 'BALANCED' APPROACH In his first event at the White House since beating Republican Mitt Romney in Tuesday's election, Obama called on Congress to work with him to produce a plan. "I'm not wedded to every detail of my plan. I'm open to compromise. I'm open to new ideas," he said. "I'm committed to solving our fiscal challenges, but I refuse to accept any approach that isn't balanced." "If we're serious about reducing the deficit, we have to combine spending cuts with revenue. And that means asking the wealthiest Americans to pay a little more in taxes," he said. Obama said the majority of Americans believed those making more than $250,000 a year should pay more taxes, "So our job now is to get a majority in Congress to reflect the will of the American people. I believe we can get that majority." "I was encouraged to hear Speaker Boehner agree that tax revenue has to be part of this equation," he added. While striking a conciliatory tone toward the Republican House majority, Obama said voters supported his ideas, including raising taxes on the wealthiest Americans.

"I just want to point out, this was a central question during the election. It was debated over and over again. And on Tuesday night, we found out that the majority of Americans agree with my approach," he said. Tax cuts for people of all incomes enacted under President George W. Bush are due to expire in January and Obama said he was willing to extend them for those making less than $250,000 immediately but not for those making more. His spokesman, Jay Carney, said Obama would veto any bill that extends cuts for the top 2 percent of wage earners. MARKETS WORRIED Concerned that U.S. growth might stall if the fiscal cliff becomes reality, financial markets at home and abroad are paying close attention to the political wrangling. U.S. stocks cut gains on Friday after Obama spoke. Britain's top shares fell on Friday, as worry over the U.S. fiscal cliff overshadowed robust U.S. consumer sentiment data. The FTSE 100 .FTSE index closed down 0.1 percent. Boehner called on Obama to play a more active role in addressing the issue. "This is an opportunity for the president to lead. This is his moment to engage the Congress and work towards a solution that can pass both chambers," Boehner told a news conference. Top Senate Republican Mitch McConnell named taxes as the main bone of contention. "I was glad to hear the president's focus on jobs and growth and his call for consensus. But there is no consensus on raising tax rates, which would undermine the jobs and growth we all believe are important to our economy," he said. The White House staunchly defended Obama's plans to go on a Southeast Asia tour this month, including a first-ever presidential visit to once-isolated Myanmar, despite the unresolved fiscal cliff issues. White House spokesman Jay Carney cited the planned meeting with congressional leaders a day before he leaves on his November 17-20 trip as proof of Obama's early engagement in negotiations. "And I'm absolutely certain that the work that is begun there will continue while he is traveling," he told reporters. While disagreeing on immediate measures to avert the fiscal crisis, Obama and Republicans may find common ground in calls for enactment over the next six months of a larger package of deficit reduction measures, including a rewrite of U.S. tax laws. Obama sent a signal to Republicans of a willingness to compromise by calling for reduction in healthcare costs including in federal programs for the poor and the elderly, a favorite issue of fiscal conservatives. "I intend to work with both parties to do more - and that includes making reforms that will bring down the cost of healthcare so we can strengthen programs like Medicaid and Medicare for the long haul," he said. The non-partisan Congressional Budget Office reiterated on Thursday that if left unaddressed, the abrupt fiscal tightening would knock the economy back into recession, with unemployment rates soaring back to about 9 percent. The rate is now 7.9 percent. It also warned of a crisis if the United States did not stem the growth of its exploding deficit.

Wall Street to Washington: Time to compromise on fiscal cliff

(Reuters) - Investors are looking for a compromise to keep the U.S. economy from sailing over the fiscal cliff. It's just not clear that the politicians in Washington are ready to deliver one.
With $600 billion in tax increases and automatic spending cuts due to take effect in January, investors say they would welcome an agreement that delays most changes until Congress can hammer out a long-term deficit reduction deal in early 2013. "At the very least, I would like to see some kind of conciliatory rhetoric on both sides of the aisle to give investors assurance that a grand deal is coming," said Jack Ablin, chief investment officer at Harris Private Bank. Without that, things could get ugly in markets. U.S. stocks accelerated a recent losing streak in the days following this week's election, in which voters returned President Barack Obama to the White House but left Republicans in command of the House of Representatives and Democrats controlling the Senate. That same combination dragged out long negotiations over raising the debt ceiling in August 2011. In President Obama's first public statement since the election on Friday, he reiterated his demand to raise taxes on high earners. Earlier in the day, Republican House Speaker John Boehner restated his opposition to such a move. "What that means is that fiscal cliff negotiations are picking up exactly where they left off," said Ward McCarthy, chief financial economist at Jefferies & Co. "Fasten your seat belt, it will be a bumpy end of the year in Washington." A majority of economists polled by Reuters said consumer and business confidence would wilt and the economy suffer if talks to head off the budget crisis collapse. The Congressional Budget Office has warned that sailing over the cliff would trigger "a significant recession" and the loss of about 2 million jobs. NO RETREAT, NO SURRENDER Worries about the danger the fiscal crisis poses for the U.S. economy put global stocks on track for their worst week since June. The main sticking point is taxes: Obama wants to raise rates on households earning more than $250,000 while Republicans want to focus on spending cuts, saying tax hikes would hurt growth. On Friday, it did not seem either side was ready to give in. Obama said he was "open to compromise" but said a majority of voters agreed with having the wealthiest Americans pay more. Boehner restated his opposition to raising taxes on the rich, saying it would depress hiring and growth. In 2011, a similarly divided government's failure to agree on deficit reduction set up the fiscal cliff showdown the economy now faces. It also provoked Standard & Poor's to strip the United States of its coveted AAA credit rating and pushed the CBOE Volatility Index .VIX, Wall Street's gauge of investor anxiety, to levels associated with panic. As Congress has punted on the hard decisions, the numbers have hardly changed: Federal red ink is expected to be more than $1 trillion in 2012 for the fourth straight year.

James Dailey, portfolio manager at TEAM Asset Strategy Fund in Harrisburg, Pennsylvania, worries that investors who were complacent about the risks before the election may rush for the exit if it seems the economy is going to fall over the cliff. "When the market starts to sell, it feeds upon fear and accelerates the sell-off," he said. REASON TO HOPE The issue is of such concern to investors because the U.S. economy has outperformed other developed economies and has shown signs of improving further. Recent U.S. economic data, including a survey showing consumer confidence hit a five-year high this month, has been encouraging. <ID: nL1E8M93F0> "There's a lot at stake, and there's a lot of momentum that could be lost if lawmakers don't get their act together," said Joe Manimbo, analyst at Western Union Business Solutions. Some are hopeful a deal can still be reached. The CBO said this week that letting income tax rates rise for households earning more than $250,000 - a staple of Obama's re-election campaign - would have little impact on the economy. Not all investors disagree, as some interviewed in recent weeks said they would be willing to pay more taxes if it helped balance the country's budget. Some, like Vassili Serebriakov, a currency strategist at BNP Paribas, also said a deal could prove easier to reach now that Obama is no longer running for re-election. "Of course, we need to see evidence that the negotiating positions have changed," he said. Serebriakov also said investors may be fooling themselves if they think the market will rally strongly between now and year end, regardless of what happens with the fiscal cliff. "It's the end of the year, equities have been under pressure on the back of earnings, and there's just a lot of caution in the market," he said. "It really seems like markets will wait until early 2013 before committing to any particular view."