Republicans lay down battle lines over fiscal cliff

Republicans offered newly re-elected President Barack Obama a short-term fix to the fiscal cliff Wednesday, but insisted they would not cave in to tax increases to boost revenues.

Laying down battle lines for urgent new talks on deficit-fixing measures, House of Representatives Speaker John Boehner said he and his party were ready to work with Obama to slash the deficit and debt over the long term.

But he dismissed Obama's call for a grand bargain before the January 1 onset of the cliff, a package of mandatory austere budget cuts and tax hikes that could send the economy back to recession if not reversed by fresh legislation.

Instead, he offered a near-term bandage, to be followed by talks next year on fundamental reform of tax laws, social security and other social benefits -- but rejecting Obama's demand for tax hikes for the wealthy to be included.

"Mr. President, the Republican majority here in the House stands ready to work with you to do what's best for our country," Boehner said.

"What we can do is avert the cliff in a manner that serves as a downpayment on and a catalyst for major solutions enacted in 2013 to begin to solve the problem."

It was the first gambit in what promises to be another tough partisan battle over taxes and spending, just one day after Obama won a tough battle for the White House fought much over the same issues.

US markets plunged 2.4 percent on the prospect that Democrats and Republicans, who retained control of the House of Representatives, would fail to compromise to avert the austerity plan programmed for the end of the year.

"By returning a divided government to Washington, the electorate has given neither party a clear mandate to address the lackluster recovery, the fiscal cliff, and the looming debt crisis," said Brian Kessler at Moody's Analytics.

Multiple attempts to craft a grand compromise over the past two years have failed, leaving the country stuck with the poison pill deal reached in August 2011 that requires stark spending cuts and tax increases from January.

The plan in effect would suck nearly $600 billion out of the economy next year, sending it back into recession with soaring unemployment, according to the Congressional Budget Office.

Such a specter was meant to motivate the parties to strike a more moderate compromise, but in the long and tightly fought election battle that never happened.

Both sides agree on the need for a program to reduce over the long term budget deficits that have topped $1 trillion a year for four years running, sending the country's debt to over $16 trillion, the size of the total economy.

And pressure has mounted in recent weeks from the US business community and economic leaders for a less austere plan to repair US finances

If the economy goes over the cliff, "It will take most of the decade for economic activity and employment levels to recover from the fiscal shock," the National Association of Manufacturers said.

At a meeting in Mexico last week, the G20 economic powers and the International Monetary Fund warned the cliff threatened global economic growth.

Republicans left Obama little time to savor his victory, with Boehner's offer of fresh talks.

He said these could include planning for a sweeping revision next year of the byzantine US tax code, but giving no ground on Obama's demand that any deal include higher tax rates for the wealthy.

Boehner said government revenues can only be increased by cutting loopholes and special breaks in the tax code, and by reforms to spending on public retirement and health programs.

"Feeding the growth of government through higher tax rates won't help us solve the problem. Feeding the growth of our economy through a better and cleaner tax code will," he said.

Obama made no immediate comment on Boehner's statement, but he has previously opposed calls for a short-term fix, arguing that this is just "kicking the can down the road."

Vice President Joe Biden told reporters the elections showed Americans were "coming much closer to our view about how to deal with tax policy."

But he also said that apart the issues of taxes and spending cuts was possible. "There's all kinds of potential to be able to reach a rational, principled compromise," he said.

--

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