House Speaker John Boehner (R-Ohio) and Senate Democratic leaders separately addressed reporters on the talks to meet a year-end deadline to avert a series of tax increases and spending cuts that will take effect if a deal is not reached. And while both sides stressed the importance of not going over the fiscal cliff, which many economists say could severely damage the economy, they peppered their remarks with mutual accusations of failing to present a credible plan.
"Two weeks ago we had a very productive conversation at the White House," Boehner said. "But based on where we stand today I would say two things. First, despite the claims that the president supports a balanced approach, the Democrats have yet to get serious about real spending cuts. And secondly, no substantive progress has been made in the talks between the White House and the House over the last two weeks."
Shortly after, Senate Majority Harry Reid (Nev.) and other top Democrats stepped to the podium with a similar critique.
"Republicans know where we stand," Reid said. "We're still waiting for a serious offer from the Republicans."
The principal fault line in the debate concerns the pending expiration of the Bush-era tax rates, which would see taxes for all payers, including those on capital gains and dividend income, increase in January. President Obama has long advocated that the current lower rates should be preserved for all but the top 2% of earners, or those with household incomes below $250,000 ($200,000 for filers who are single). Republican leaders, most significantly Boehner, whose party holds the majority in the House, have agreed to consider additional revenues, though they have generally insisted on closing exemptions and capping deductions, rather than raising marginal rates as Obama has called for.
But Democrats have complained that their colleagues on the other side of the aisle have yet to offer a specific proposal for the tax changes that they would accept, talking generally about curbing deductions and exemptions without naming them, and refusing to give ground on marginal rates. (Republicans counter that Democrats have not been specific about what spending cuts they would accept.)
"Really, now is the time for the Republicans to move past this happy talk about revenues -- ill-defined of course -- and put specifics on the table," Reid said. "The president's made his proposal. We need a proposal from them."
Speaking to reporters on Thursday, White House Press Secretary Jay Carney reiterated the president's commitment to raise rates on the wealthiest Americans, recalling the central role that issue played in the campaign.
"The remaining obstacle here, on the revenue side, is that Republicans, at least Republican leaders, have yet to accept the essential fact that in order to achieve the kinds of revenue that are necessary for a balanced proposal, balanced plan, rates on the top 2%, the top -- the wealthiest earners in this country, are going up. They have to go up. The president will not sign any legislation that extends the Bush-era tax cuts for top earners in this country," Carney said. "This should not be news to anyone on Capitol Hill. It is certainly not news to anyone in America who was not in a coma during the campaign season, because this was an explicit, repeated and high-profile debate throughout the campaign."
Despite the hard lines Boehner and the Democrats drew on Thursday, both sides said they were optimistic that a deal could be reached before the end of the year, stressing the importance of averting the fiscal cliff, not only to avoid the harmful effects on job growth and capital investment, but also out of fear of the impact that prolonged uncertainty about the country's financial health would have on the markets.
For financial advisors, the prospect of a spike in capital gains and dividend taxes, as well as changes in the exemptions for the estate and gift taxes, could be a significant concern for their clients. If no deal is reached, the top rate for capital gains would jump from 15% to 20%, and dividend income would be taxed at a rate commensurate with ordinary income, which for top earners would increase to 39.6%. For the wealthiest Americans, both sources of investment income would also be subject to an unrelated Medicare surcharge of 3.8% percent that was included in Obama's health-care overhaul.
In a recent poll conducted by the Financial Services Institute, independent advisors expressed strong confidence that Congress and the White House will broker a compromise to avoid going over the fiscal cliff. Seventy-nine percent of respondents said they believe that the two sides would reach a deal before the end of the year, with 72% saying that any agreement would likely include a mix of rate increases for top earners and caps on deductions.