Fresh doubt over US 'fiscal cliff' deal

US House speaker re-elected with new Congress

Hopes for avoiding the "fiscal cliff" that threatens the US economy have fallen, after fighting among congressional Republicans cast doubt on whether any deal could be reached with President Barack Obama.

US and world stocks dropped significantly on Friday on concerns that the end-of-year jolt could bring on another recession.

The top Republican in the House of Representatives, Speaker John Boehner, was forced to cancel a vote for his own plan on Thursday after it became clear that he did not have enough support from members of his party.

He had proposed letting taxes rise on households making $1m or more a year, but some Republicans, especially conservatives and members of the small-government tea party movement, do not want higher taxes at all.

A budget pact would need to win approval before automatic tax increases and deep spending cuts kick in on January 1.

'God only knows'

Boehner on Friday signalled that he was still open to talks with Obama, but he also tried to shift the pressure for a deal to the president.

"We only run the House. The Democrats continue to run Washington," he told reporters. Boehner said he did not know how the fiscal cliff would be avoided. "How we get there, God only knows."

His plan, introduced abruptly this week, had been unlikely to pass the Democratic-controlled Senate, and Obama had threatened to veto it. But he had hoped it would rally Republican troops and strengthen his position in talks with Obama on how to make up for the country's chronic deficit spending.

Instead, the withdrawal of his plan was an embarrassment and a major personal defeat. It also added uncertainty to prospects for any bill clearing the House.

Any compromise reached with Obama would almost certainly include terms even less appealing to Republicans than the plan Boehner had put forward.

"We had a number of our members who didn't want to be perceived as raising taxes," Boehner said on Friday.

Boehner may now have to rely on the support of the House's Democratic minority if any plan is to get through the chamber. That could damage his standing within his party and affect his prospects for retaining the speaker's position when the newly elected Congress takes office in January.

'We are hopeful'

The White House said Obama will press ahead with Congress on a plan to avoid the fiscal cliff, but Thursday's events leave little time for a deal.

"They went from Plan B to plan see-you-later," Obama adviser David Axelrod said on MSNBC on Friday morning.

The House will not meet again until after Christmas, if then, and the Senate is expected to meet briefly on Friday, then not reconvene until next Thursday.

"The president will work with Congress to get this done, and we are hopeful that we will be able to find a bipartisan solution quickly that protects the middle class and our economy," spokesperson Jay Carney said.

Pointedly, the statement did not say whether Obama would work with Boehner to revive the stalled talks or turn first to the Democratic-controlled Senate to try to salvage the situation.

The question of raising taxes on the wealthiest Americans has been the biggest sticking point in talks, as tax cuts approved during President George W Bush's presidency are set to expire at the end of the year.

Obama campaigned for re-election calling for the cuts to be extended for anyone earning less than $250,000. Republicans opposed taxes going up for anyone.

Boehner and Obama had seemed to be making progress in negotiations, as Boehner's plan proposed allowing taxes go up for those making $1m or more. Obama had offered a compromise $400,000 level.

In the negotiations, Obama and Boehner are separated by relatively miniscule dollar differences, by Washington standards. Obama wants to raise taxes by about $20bn a year more than Boehner.

Compared to the $2.6tn the government expects to collect next year and to the $3.6tn it plans to give out, $20bn barely registers - less than one percent of what the government already is on track to raise and spend.

By using Yahoo you agree that Yahoo and partners may use Cookies for personalisation and other purposes