‘Fiscal Cliff’ negotiations set to commence; U.S. President seeks balanced approach

FXstreet.com (San Francisco) - A week after renewing his contract with the American people, an emboldened President Obama, who believes he has a mandate, will meet with Democratic and Republican congressional leaders at the White House Friday to begin negotiations to try to keep the U.S. economy from falling off of the self-imposed ‘fiscal cliff’.

The fundamentals of the debate between the President and Republicans on this issue are simply this: In order to balance the budget, the Democratic approach involves increasing the tax rate on America’s wealthiest families and businesses by a few percentage points, back to what the tax rates were when Bill Clinton held office - 39.6 percent. The proposed tax increase would NOT raise taxes on 98 percent of American families, and would NOT raise taxes on 97 percent of small businesses. During the Clinton administration, the United States enjoyed substantial economic growth, and when he left office, the nation had a surplus - President Obama intends to return to tax policy that lead to this kind of economic success.

The Republican approach involves extending the Bush-era tax cuts for the wealthiest Americans (no tax increases). The party has been largely uniform in its opposition to compromise on the issue, arguing that deep spending cuts to some of the nation’s most treasured entitlement programs are the answer to generate more revenue, not tax increases. But President Obama now insists that a balanced approach is necessary and that he ‘will not budge’ on his view that tax increases must be a part of any agreement to balance the budget in addition to spending cuts.

From Mitul Kotecha, Founder at Econometer: "Conciliatory signs from both sides suggest some attempt at compromise but tough starting points mean that it will not be easy to match rhetoric with reality." Here’s an interesting statistic worth noting: about 50 percent of the US’s risk to the ‘fiscal cliff’ will be erased by letting the Bush-era tax cuts expire at the end of the year.

After stomping his Republican rival in last week’s general election, President Obama is said to have a big bag of political capital, and is willing to use it. In his first press conference since winning reelection, the President said the following about taxes: “I think every voter out there understood that, that was an important debate, and the majority of voters agreed with me. By the way, more voters agreed with me on this issue than voted for me. So, we’ve got a clear majority of the American people who recognize, if we’re going to be serious about deficit reduction, we’ve got to do it in a balanced way.”

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