Fiscal cliff forces Obama back to Washington

Updated December 27, 2012 08:37:00

The US president Barack Obama will return to Washington tomorrow, cutting short his Christmas vacation, to try to avoid what's known as the fiscal cliff. If no deal can be reached by the end of the year a series of spending cuts and tax hikes will take effect, which it's feared could push the US economy back into recession.

Source: AM | Duration: 3min 9sec

Topics: world-politics, money-and-monetary-policy, united-states


TONY EASTLEY: The US president Barack Obama is cutting short his Christmas holiday in Hawaii in a last ditch effort to reach a deal to avoid the so-called fiscal cliff.

The fast approaching end of year deadline, which will see an automatic series of deep spending cuts and big tax increases, is also forcing members of Congress to return to Washington.

If no deal is reached and America goes over the fiscal cliff, the impact may push the US economy back into recession.

From Washington, Kim Landers reports.

CNBC PROMO: The clock is ticking and time is running out, only five days remain to avoid the fiscal cliff.

KIM LANDERS: In the United States, there's no avoiding the fiscal cliff countdown. Some in the media are even calling it Washington's version of "Mission Impossible" - how to get a politically divided and gridlocked Congress to reach a deal with the president before an austere regime of tax increases and deep spending cuts automatically comes into effect.

Matthew Shay, who's the president of the National Retail Federation, believes Americans are growing increasingly nervous about what lies ahead.

MATTHEW SHAY: And I think the repetitive conversation about the fiscal cliff, well maybe every consumer can't articulate each individual item and element of the cliff, they know there's something not good going on with the economy right now and if it's on the front line of every newspaper and if it is the headline and lead story of every television show, it starts to seep into consumer psyche.

KIM LANDERS: David Spika from the investment company The Westwood Group thinks there's still enough time to avoid the fiscal cliff.

DAVID SPIKA: I'm sure something gets done, neither party wants us to go into a recession and so whether or not it is a grand deal or if it's a smaller deal, once we get that uncertainty removed, that's going to be the trigger to getting the market going higher, to getting corporations to spending more, to getting better job growth, consumer backed spending. Removing that uncertainty will be the key and ultimately that will happen.

KIM LANDERS: President Barack Obama will return to Washington tomorrow to try to hammer out a deal, although he's already signalling that with time so short it'll have to be a stopgap measure.

After trying and failing to negotiate with Republicans who control the House, the president will rely on the Democrat controlled Senate to craft an interim deal.

But any package will have to pass both houses of Congress and be signed into law by New Year's Eve.

And Republican strategist David Winston says the president and House speaker John Boehner will have to get over their differences to work on a long-term solution.

DAVID WINSTON: Part of what the two of them have to do is work through the sense of I won, no I can do this. It's what are we going to get done collectively and that's going to be the challenge and the president, and I understand he thinks he won the election so therefore he has a mandate, but you can't walk into negotiating process like that and expect to get to a successful outcome with that attitude.

KIM LANDERS: The fiscal cliff deadline was put in place to try to force the president and Congress to agree on ways of reducing America's massive national debt.

But without that agreement the fear is that raising taxes while massively cutting spending will have a huge impact on households and businesses and could even push the United States back into recession.

This is Kim Landers in Washington for AM.