Congress back to sparring over 'fiscal cliff' despite Obama appeals

In a sign of trouble ahead in resolving the 'fiscal cliff', Democratic and Republican leaders on Wednesday claimed new but conflicting election "mandates" on how and when to deal with tax increases and spending cuts that threaten a US recession.

Amid promises not to draw lines in the sand, congressional leaders did just that, staking out well-worn bargaining positions despite President Barack Obama's appeals for compromise after his election victory.

The leader of the Senate's Democratic majority, Harry Reid, said he wanted to avoid the tax increases except for the wealthy and he would like to see substantial measures enacted during the lame-duck session of Congress that starts next week.

His Republican counterpart in the US House of Representatives, Speaker John Boehner, said that while he was open to tax reform, and saw considerable common ground on that, he continued to find tax increases unacceptable.

Boehner repeated his previous objections to moving forward during the lame-duck session, except with temporary, stop-gap legislation to avoid the cliff.

Earlier on Wednesday, Obama phoned both Boehner and Reid, to express his commitment to work together with them on reducing deficits, taxes and boosting job growth.

Later, Vice President Joe Biden, saying the administration would like to move "right now", claimed "a clear, clear sort of mandate" on the tax issue, citing in particular doing "something on corporate taxes sooner than later".

It was thus apparent on the day after the election that the clarity it was supposed to have brought had yet to arrive. Investors fretted about the impact of the $600 billion hit to the economy the cliff could bring, sending stock prices tumbling more than two percent. Worried business leaders pleaded for action sooner rather than later to ease the uncertainty.

James Rohr, chief executive officer of regional bank PNC Financial Services Group Inc issued a statement describing "the impending fiscal cliff" as the "single biggest issue America faces". He added that "the partisan nature that has brought us to this point cannot be allowed to sustain itself for any period of time".

"The president, I believe, has won a mandate," John Engler, head of the CEO lobby in Washington, the Business Roundtable. "That's what winning elections are all about," said the former Republican governor of Michigan. "When you win, you have a mandate. It's not the margins. It's the victory."

"The Republicans are in the minority in government."

Boehner spoke most extensively during the day. In remarks to reporters, Boehner struck a conciliatory tone, but offered up only the same positions that Republicans pressed throughout their campaign: they are willing to consider boosting revenues to help reduce deficits, but only as a "byproduct" of tax reform that lowers rates and eliminates loopholes and deductions.

That conflicts with President Barack Obama, who has pledged to increase tax rates on Americans earning over $250,000 as a part of his "balanced approach" to deficit reduction.

"In order to garner Republican support for new revenues, the president must be willing to reduce spending and shore up the entitlement programs that are the primary drivers of our debt," Boehner said. "We aren't seeking to impose our will on the president. We're asking him to make good on his ‘balanced' approach."

Reid said he also conferred with Boehner and both had agreed not to "draw any lines in the sand" for the time being.

At the same time, Reid stressed that Democrats were not likely to budge from their standard negotiating position expressed by Obama, that tax increases should apply to the wealthy, not those in the middle class or below. And made clear that that cuts to Social Security are off the table as far as he was concerned.

Obama's solid victory and Democratic gains in the U.S. Senate, Reid said, had validated the party's position on taxes. "I'm willing to negotiate at any time on any issue ... I want to work together but I want everyone to understand you can't push us around," Reid said.

Doing something about the expiring tax cuts — enacted during the administration of former President George W Bush — could prove more difficult to negotiate over the next few weeks than a fix to prevent across-the-board deficit reduction spending cuts, in part because both parties have been wedded for two years to their particular positions.

Reid said he would prefer a solution in this year's so-called lame duck session rather than enact a temporary fix for the fiscal cliff that would push the issue into the newly elected Congress, which starts in January.

"I'm not for kicking the can down the road," he told reporters. "We need to solve it."

Boehner, whose Republicans remained firmly in control of the House of Representatives, called for a short-term plan to avert the fiscal cliff in a way that provides a "downpayment" on larger tax reform in 2013.

"We won't solve the problem of our fiscal imbalance overnight in the midst of a lame duck session of Congress," he said.

(Additional reporting by Thomas Ferraro and Kim Dixon; Editing by Fred Barbash, Jackie Frank and Andrew Hay)