Obama on the Fiscal Cliff: It’s Solvable
President Barack Obama held his first news conference since the election on Wednesday and his opening remarks mainly focused on the economy, reiterating what he said in a statement on the fiscal cliff last Friday. That is: the economy is recovering from deep recession, but progress is slow; a series of decisions must be made by the end of the year in order to avoid disaster; and the focus must remain on jobs.
Obama mentioned in his opening remarks that America should reward manufacturers who create jobs at home, not overseas. After the press conference the President will get the opportunity to talk with manufacturers who are doing just that, including the CEO of General Electric (NYSE:GE), Jeffery Immelt.
Immelt wrote an article in the middle of October that explained how GE and companies like Boeing (NYSE:BA) and Alcoa (NYSE:AA) have a need to fill 600,000 skilled manufacturing positions. In order to do this, they have initiated the “Get Skills to Work” coalition aimed at placing an initial round of 15,000 veterans in technically advanced jobs.
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The President emphasized that the most important thing the government could do right now was to create jobs and establish economic certainty moving into the future. The best way to do that would be to make sure that taxes don’t go up for the 98 percent of Americans and 97 percent of small businesses that fall outside of the “wealthy” bracket.
“If we get that in place, we are actually removing half of the fiscal cliff. Half of the danger to our economy is removed by that single step,” Obama said. “We could get that done by next week.”
Both Democrats and Republicans agree that middle-class tax cuts should continue, but the other issues involved in the negotiations threaten to hold back progress. “The only question now is are we going to hold the middle class hostage in order to go ahead and let that happen?” asked the President.
The divisive issues that could hold the middle class hostage are tax hikes for the wealthy and entitlement cuts. Obama’s approach calls for increased revenue from America’s wealthiest citizens, a strategy that many Republicans adamantly oppose. The Republicans’ path to fiscal responsibility involves deep cuts to entitlement, many of which Democrats oppose.
“I believe we have to take a serious look at how we reform our entitlements,” said Obama, offering some hope that compromises could be made. Obama will reportedly come to the negotiating table asking for a revenue increase of $1.8 trillion, which is expected to be brought down to a more agreeable rate of around $1 trillion. However, the President put his foot down on revenue.
“What I’m not going to is extend bush tax cuts for the wealthiest 2 percent that we can’t afford, and according to economists will have the least positive impact on our economy,” he said.
When asked whether closing loopholes would satisfy him, he responded that while loopholes should be closed, it won’t be enough. “The math tends not to work,” he said, meaning that there will be about $1 trillion missing from the budget without the tax increases on wealthy Americans.
“I believe this is solvable,” said Obama. “I think that fair minded people can come to an agreement that does not cause the economy to go back into recession.”
“My budget frankly does it,” he said, but added “I don’t expect the Republicans to simply adopt my budget, that’s not realistic. So I recognize that we’re going to have to compromise.”
When asked if he could envision any scenario where America does go off the fiscal cliff, the president said that the resulting tax hike for middle-class families “will have a big impact on the holiday shopping season, which in turn will have an impact on business planning and hiring and we can go back into a recession.”
Congress returned to session with just seven weeks to go before the fiscal cliff. As Obama concludes the news conference, major indexes are once again trekking downward. At 2:45 p.m. in the afternoon in New York, the Dow Jones Industrial Average was down 0.89 percent, the S&P 500 was down 0.69 percent, and the Nasdaq was down 0.64 percent.
“We’re both going to hold hands and do what’s best for the American people,” the President said about Democrats and Republicans. The statement could apply equally to America’s business leaders, some of whom he will sit down with later on Wednesday to discuss how best to move forward in the coming weeks.
Along with Immelt, Obama will speak with Alan Mulally, president and chief executive of Ford (NYSE:F). The American auto industry took a particularly brutal hit during the crisis and has only recently begun showing strength. Ford had to make deep and difficult cuts to its workforce in America and is poised to do the same thing overseas as it adapts to the global economy and the looming cliff.
John Watson, chairman and CEO of Chevron (NYSE:CVX), will also be attending the discussion. Oil supermajors have suffered recently because of dropping prices, and the election spurred heated conversation about the future of America and North American energy independence. With the International Energy Association predicting that America will become the leading producer of oil by 2020, President Obama’s treatment of the oil industry will be critical moving into the future.
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