Billionaire investor Warren Buffett believes the US fiscal cliff may be solved by January rather than December

On Tuesday Senate majority leader Harry Reid said talks had made “little progress”, sending stock markets lower.

“They talked some happy talk about doing revenues, but we only have a couple weeks to get something done,” Mr Reid, a Democrat, said of negotiations between his party and the Republicans.

Although he qualified his remarks by saying he was “extremely hopeful” and did not believe that the Republicans were going to “allow us to go over the cliff”, his comments prompted stock markets worldwide to fall about 0.5% on average.

Democrats control the Senate and the Presidency, while Republicans control the House of Representatives – the second chamber of Congress – and enjoy a blocking “filibuster” minority in the Senate. Both parts of Congress and the President have to come together to broker a deal.

‘D-Day is here’

Warren Buffett has advocated raising taxes on the most wealthy Americans such as himself – in particular via an increase in capital gains tax, from which high earners benefit disproportionately, due to their large investments.

What is the fiscal cliff?

  • Under a deal reached last year between President Obama and the Republican-controlled Congress, existing stimulus measures – mostly tax cuts – will expire on 1 January 2013
  • Cuts to defence, education and other government spending will then automatically come into force – the “fiscal cliff” – unless Congress acts
  • The economy does not have the momentum to absorb the shock from going over the fiscal cliff without going into recession

“We’ve kicked it down the road for a long time, but D-Day is here,” he said. “That doesn’t mean that we’ll get the fiscal cliff solved by December 31 – I hope we do – but it may go over into January.

“But we are going to have to address important policy questions and I think Congress knows it, and the president knows it, and certainly the American public knows it.”

Both US parties have accused the other of intransigence in negotiations.

Most Republican members of Congress have promised not to raise taxes, making it hard for them to agree to allow expensive income tax cuts dating from George W Bush’s presidency to expire at the end of the year.

However Democrats, including President Barack Obama, have insisted that the tax cuts for those earning more than $200,000 (£125,000) must not be renewed.

Meanwhile Republicans accuse Democrats of refusing to rein in “entitlement programs” – commitments to provide medical care and retirement benefits, which are set to rise substantially as the post-war baby boom generation retires this decade.


 

 

 

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