As the White House talks wrapped up today, U.S. stocks rose. The Standard & Poor’s 500 Index rose as much as 1 percent after leaders emerged from the meeting. The index was up less than 1 percent to 1,355 at 2:46 p.m. in New York after closing yesterday at its lowest level since July 25. The S&P 500 had lost almost 6 percent since the election.
Treasuries rose, reflecting strong demand for U.S. debt worldwide, with 10-year note yields touching a 10-week low. The benchmark 10-year yield fell three basis points, or 0.03 percentage point, to 1.56 percent at 2:24 p.m. New York time, according to Bloomberg Bond Trader prices.
While tax questions will be central in the fiscal talks, the two sides also will consider a down payment on replacing automatic spending cuts should discussions on a broader plan fail, according to congressional aides.
Also in the meeting on the so-called fiscal cliff were Vice President Joe Biden, Treasury Secretary Timothy F. Geithner and White House Chief of Staff Jack Lew.
The president supports higher taxes for top earners mixed with some spending cuts. Republicans want to extend expiring tax cuts for all income levels and are demanding an overhaul in 2013 of entitlement programs and the tax code.
“My hope is that this is going to be the beginning of a fruitful process where we’re able to come to an agreement,” Obama said in his opening remarks today.
While insisting on higher taxes, Obama has shown openness in recent days. He and Geithner said rates must increase without specifying that the top rate must return to the 39.6 percent level in effect when President Bill Clinton left office.
Democrats and some Republicans are beginning to talk publicly about a more modest increase in upper-income tax rates.
One idea would be to raise Obama’s $250,000 income threshold for a tax increase to $500,000 or $1 million and increase the current 35 percent top rate to 37 percent.
“Will John Boehner really blow up a deal for a 1 percent point increase above $1 million?” Orszag said. “The administration has made it clear there has to be at least some increase in marginal tax rates.”
Yesterday Representative Steve King, an Iowa Republican, said Boehner, an Ohio Republican, could probably get a revenue package through the House that curbs deductions and credits for the highest earners and slightly raises rates above the current 35 percent level, as long as it remains short of the 39.6 percent that Obama wants.
“It may not have to be the 39-and-a-half percent number, it could be something less than that,” King said. “If he can squeeze a little more money out of it by closing loopholes I think he’ll make that deal,” he said, referring to the president.
While it “will be tough” to get through the House, King said, “there might be enough pressure could come on John Boehner that more votes come from Democrats than Republicans.”
Several congressional aides have suggested that in the event talks fail, both parties in Congress are discussing fallback plans for $60 billion to $100 billion in deficit reduction to replace automatic spending cuts set to take effect in January.