Obama to address economy, 'fiscal cliff' Friday

President to make first post-election comments

Three days after being re-elected, President Barack Obama will deliver a statement on the economy Friday, two administration officials said Thursday.

The 1:05 p.m. ET statement in the White House's East Room will serve as an opportunity to address some of the big issues that Washington will tackle in the next few months -- including staving off the so-called fiscal cliff -- and to outline his priorities moving forward.

An official schedule released by the White House Thursday said the statement would address "the action we need to take to keep our economy growing and reduce our deficit."

CBO warns of fiscal cliff risk

Earlier on Thursday, the nonpartisan Congressional Budget Office estimated the economic punch of different parts of the cliff -- a series of spending cuts and tax increases that start taking effect in January.

They include reductions in both defense and non-defense spending; the expiration of the Bush tax cuts; the end of a payroll tax holiday and extended unemployment benefits; and the onset of reimbursement cuts to Medicare doctors.

Congress may choose to avert the cliff in whole or in part after what are expected to be fraught negotiations between President Obama and Congress, particularly House Republicans.

The fiscal cliff as a whole, if it went into effect for all of next year, could result in a drop of 0.5 percent in real gross domestic product, according to the CBO. And that contraction could push unemployment to 9.1 percent by the end of 2013.

The report looks at the short-term impact of different policy decisions that Congress may make to avoid parts of the cliff.

For example, Congress could choose to protect 27 million taxpayers from paying the Alternative Minimum Tax and extend the Bush tax cuts along with other expiring tax cuts. Such a move could boost real growth by 1.4 percent and increase employment by 1.8 million by the end of 2013, while adding $330 billion to the deficit, CBO estimates.

If Congress chose to do the same thing but not extend the Bush tax cuts on income over $200,000 ($250,000 if married), as President Obama has proposed, that could boost output by 1.3 percent and add 1.6 million jobs. The deficit under such a scenario would be $288 billion higher.

Should lawmakers opt to cancel the non-defense spending cuts and avert the scheduled payment cuts to Medicare doctors, real GDP could be 0.4 percent higher and employment boosted by 400,000 by the end of 2013. Those policies would add $40 billion to next year's deficit.

If the fiscal cliff were averted altogether -- minus an extension of the payroll tax holiday and expanded unemployment benefits -- real GDP would be 2.2 percent higher and there would be 2.7 million more jobs next year. The deficit would increase by $395 billion.

At the same time, the country can't afford to put off fiscal tightening for too long. The growth in federal debt, which is already at its highest point since 1950, would continue to rise much faster than the economy -- and that would hurt growth.

"Such a path for federal debt could not be sustained indefinitely, so policy changes would be required at some point," the CBO said.

Party leaders still disagree on taxes

Even after the election, Democratic and Republican congressional leaders continue to sharply disagree over the key issue of whether top tax rates should be raised to help resolve the looming crisis.

Republicans said higher rates would damage the economy, while Democrats said it was the only equitable way to tackle the debt.

In a formal speech on Capitol Hill Wednesday, House Speaker John Boehner sounded conciliatory even as he made it clear higher tax rates would be unacceptable to Republicans who control the House.

"For the purposes of forging a bipartisan agreement that begins to solve the problem, we're willing to accept new revenue, under the right conditions," Boehner said.

The speaker then insisted the revenue come from "a growing economy, energized by a simpler, cleaner, fair tax code, with fewer loopholes and lower rates for all," and not from higher rates on higher earners.

As part of a broader compromise, Boehner said that tax reform must be coupled with "concrete steps to put our country's entitlement programs on a sounder financial footing."

A Senate Democratic leadership aide complained Boehner's approach on revenue -- which might not require the wealthy to pay more -- was "insufficient" and would not raise enough money to have a significant impact on the deficit.

Earlier Wednesday, Senate Majority Leader Harry Reid said that he and Boehner had a "pleasant conversation" by phone and that he didn't expect either man to "draw any lines in the sand" ahead of negotiations.

But Reid insisted several times that raising taxes on wealthier Americans has to be part of any compromise to resolve the crisis and, emboldened by election gains in the House and Senate, Reid said Republicans "can't push us around" on the issue.

"There was a message sent to us by the American people, based on the campaign," Reid said at a news conference. "People making all this money have to contribute a little bit more."


Comments