WRAPUP 1-Odds rise for 'fiscal cliff' fight entering 2013

Andy Sullivan
Reuters Middle East

* Sides still far apart on taxes, spending cuts

* Time needed to sell rank-and-file on compromises

* Boehner set to return to Ohio for the weekend

WASHINGTON, Dec 14 (Reuters) - The "fiscal cliff" impasse is

raising the odds that Congress will fail to meet a year-end

deadline to avert steep tax hikes and budget cuts that could

push the nation into another recession.

With talks between President Barack Obama and House of

Representatives Speaker John Boehner at an apparent standstill,

analysts said on Friday that it was increasingly likely that

Washington won't be able to reach a deal before Jan. 1.

"It's time to contemplate a plunge off the cliff," Potomac

Research Group analyst Greg Valliere wrote in a research note.

Obama has insisted that any deal must raise taxes on the

wealthiest 2 percent of U.S. households, an idea Boehner has

resisted. The two sides also are far apart on the size and

composition of spending cuts that would likely be part of a


Little progress was expected on Friday with Boehner set to

return to his congressional district in Ohio for the weekend.

Even if Boehner and Obama were to reach an agreement, they

would need time to sell rank-and-file lawmakers on the

compromises it would likely include. They also would need

several days to draw up legislation and pass it in the House and

the Senate.

Stan Collender, a budget expert with Qorvis Communications,

sees a one-in-four chance of that happening at this point.

"It's far more likely we'll go over the cliff and then fix

it retroactively in January," he wrote.

If Washington does not act, tax rates are due to rise for

all Americans at the beginning of next year and the federal

government will have to cut spending on military and domestic

programs across the board.

The resulting $600 billion hit could push the economy back

into recession, but the full effect likely would not be felt for

months - giving lawmakers some time after the New Year to

resolve the situation.


Representative Steny Hoyer, the No. 2 Democrat in the House,

said Congress could agree to keep current tax and spending rates

in place for several weeks if negotiators reach a deal in

principle by the end of the year but don't have enough time to

pass it into law.

That probably will be impossible if Obama and Boehner have

no deal in place, the Maryland lawmaker said.

"If we don't get an agreement of any type, then, yes, I

think you're going to run into a hard-and-fast deadline of

December 31," Hoyer said on Fox News on Thursday night.

Though the economy would likely not take an immediate hit if

lawmakers miss the deadline, failure to reach a deal could spook

financial markets, which have been relatively calm in recent


Still, the uncertainty over the cliff has weighed on markets

and overshadowed other relatively good economic news.

"The uncertainty that (the cliff) is creating is basically

holding the markets hostage in the short term," said Andres

Garcia-Amaya, global market strategist at J.P. Morgan Funds, in

New York.

Opinion polls show most Americans support Obama's demand to

raise tax rates on the wealthiest 2 percent of households and

many observers expect Republicans will ultimately go along.

The Democratic-controlled Senate has already passed such a

bill and pressure is mounting on Republicans in the House to

approve it as well.

That legislation would prevent tax hikes for everybody else,

but it would still allow spending cuts to kick in that would

hurt hospitals, defense contractors, and a range of other

sectors, analysts at International Strategy & Investment wrote

in a research note.

Expiring jobless benefits and payroll tax cuts also would

create broad headwinds for the economy.

It also would set up months of budget battles that could

create yet more uncertainty, they wrote.

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