Published November 09, 2012
President Barack Obama will join the battle over the U.S. "fiscal cliff" on Friday for the first time since voters gave him a second term, setting the stage for a showdown with congressional Republicans over sharp tax hikes and spending cuts slated to take effect early next year.
Obama is to make a statement from the East Room of the White House at 1:05 p.m. EST (1805 GMT). His opening move in what is expected to be a tense negotiation to avert the so-called "fiscal cliff" was telegraphed Thursday by a top adviser, David Plouffe, who claimed a mandate from Tuesday's election victory to raise taxes on the wealthy.
That set up a clash with the Republican-controlled House of Representatives, whose leader, Speaker John Boehner, reiterated his opposition to any increase in tax rates.
Boehner has scheduled his own news conference for Friday morning ahead of the president's statement.
The "fiscal cliff" of steep government spending cuts and tax increases due to be implemented under existing law in early 2013 may cut the federal budget deficit, but economists warn it also could tip the economy back into recession.
While disagreeing on immediate measures to avert the looming 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.
The president called for negotiations on such a "grand bargain" during his campaign.
Obama, who defeated Republican challenger Mitt Romney in a race in which the two candidates offered different visions for spurring the sluggish economy, is not expected to put forward a new or specific plan.
Instead, he is more likely to urge Congress to tackle the fiscal cliff during its post-election session that begins next week.
The president's advisers told reporters on Thursday that dealing with the fiscal cliff would be an immediate priority. The administration sees Obama's re-election as an endorsement of his position that affluent Americans should see their taxes rise, they said.
"One of the messages that was sent by the American people throughout this campaign is ... (they) clearly chose the president's view of making sure that the wealthiest Americans are asked to do a little bit more in the context of reducing our deficit in a balanced way," senior White House adviser David Plouffe 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.
But it also warned of a crisis ahead if the United States does not stem the growth of its exploding deficit.
Partisan squabbling over the budget crisis will also harm the U.S. economy, according to a strong majority of economists polled by Reuters after Tuesday's presidential election.
While most said political leaders will avert the "fiscal cliff by January 1," respondents warned that confidence in the economy will be hit hard if talks descend into a major fight.
Forty-two out of 50 economists described as "high" the risk that fraught budget talks will harm investor and consumer confidence, while the remaining eight were "neutral." But some of the damage has already been done.
"The uncertainty around the cliff has and will continue to weigh on activity," said Michael Hanson, senior U.S. economist at Bank of America-Merrill Lynch.
"You've seen signs of that in capital goods spending - orders and shipments - and it's very possible that we'll see hiring hit towards the end of the year, or early next year, depending on how the negotiations turn out," he said.