US: Wrap-up on the fiscal cliff negotiations

Congress convenes today in the lame duck session after the election recess which has lasted since 5 October. Finding a deal on the fiscal cliff is at the top of the agenda and discussions have kicked off. Below we list the key takeaways on the negotiations so far.

  • Congressional leaders will meet on Friday to discuss the fiscal cliff which makes comments over the coming weekend interesting. We do not expect a deal to be struck this soon and some political observers expect discussions to heat up after Thanksgiving (Thursday next week).

  • Obama will spend the week up to Friday meeting with various interest groups to try and get public support for a deficit-cutting accord that mixes tax increases on the wealthy with spending cuts. Today he will meet with labour leaders and tomorrow with corporate executives.

  • The liberal Democrats in Congress are pushing Obama to get a better deal through Congress than that outlined last year during the debt ceiling debate. In this process, they have highlighted that Obama will have less to lose from going over the cliff than Republicans. Whether the President is willing to play hardball in the negotiations is still to be seen, but it is a card he could play if he wants.

  • Both parties have tried to signal some bargaining flexibility. Republican House Leader Boehner has opened up for raising the revenue from wealthy tax payers by limiting their deductions instead of raising tax rates. President Obama in his speech on Friday did not mention tax rates but rather revenue increases.

  • The challenge is now for Boehner to convince the more conservative parts of the Republican party that revenue increases are alright while Obama must persuade the liberal parts of the Democratic party of a plan which includes some reductions in entitlements, notably in Medicare.

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