WASHINGTON (Reuters) – The White House has one important tool in its arsenal to influence congressional talks over further deficit reduction measures in the coming months: the expiry of Bush-era tax cuts at the end of 2012.
After President Barack Obama presented the outlines of a deficit-cutting deal on Sunday, White House officials stressed that he would veto any attempt to extend the tax cuts for the wealthiest Americans beyond next year unless other measures to reform the U.S. tax code were agreed.
That threat, which Obama has issued repeatedly since reluctantly agreeing to extend the cuts last year, is meant to mollify critics within his own Democratic party who are disappointed that measures to increase government revenues were not part of the deal reached on Sunday.
The agreement, which must still be approved by lawmakers, would cut about $2.4 trillion from the U.S. deficit over 10 years, with a congressional committee set up to find $1.5 trillion in cuts through tax reform and other deficit-reduction measures.
Obama had pressed Republicans to agree to close some tax loopholes for corporations and raise taxes on the wealthy as part of a "grand bargain" deficit-cutting agreement. But Republicans balked, saying any tax hikes would hurt the economy, and that debate prevented a deal for weeks.
Now, if the deal passes, the issue of raising revenues will move to the new congressional committee. The White House said if tax reform does not succeed there, the tax cuts put forward by former President George W. Bush will be history.
"The president has been clear that he's not going to sign an extension of the Bush tax cuts for the wealthy. So absent any kind of comprehensive tax reform, you have $800 billion, roughly, of revenue that's going to be gained through the expiration of those tax cuts," a White House official said.
"That's something that is going to be, I think, a motivational thing for both parties, to kind of control the tax reform process as you can, as opposed to be victim to the expiration of those tax cuts."
Officials from both parties have expressed interest in reforming the U.S. tax code, but the details of how to do that remain a sticking point.
Democrats want the richest Americans to revert to paying tax rates that existed during the 1990s under President Bill Clinton. Republicans say reverting to those rates would amount to a tax hike that would stifle economic growth.
White House officials said Obama would veto an extension even if it were coupled with a continuation of cuts for middle class Americans that he supports.
"The president has made clear that if we don't have comprehensive tax reform, he is not going to extend," one official said.
"And those in Congress will have to decide whether or not they will then allow the middle-class tax cuts to expire. Our sense is they probably won't. So, again, I think that's an incentive for everybody."
(Editing by Sandra Maler)
SINGAPORE – Oil prices rose above $97 a barrel Monday in Asia after U.S. lawmakers struck a last-minute agreement to raise the government's debt limit, avoiding a default.
Benchmark oil for August delivery was up $1.41 to $97.11 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. Crude dropped $1.74 to settle at $95.70 on Friday.
In London, Brent crude was up $1.21 at $117.95 per barrel on the ICE Futures exchange.
President Barack Obama announced late Sunday that the deal agreed to by Republican and Democratic leaders would cut more than $2 trillion of federal spending over the next decade. Congress is expected to vote on the bill Monday.
Oil prices sputtered down from near $100 last week amid investor concern a U.S. debt default could trigger a recession and hurt crude demand.
Crude also dropped last week because of evidence U.S. economic growth is slowing. The U.S. Commerce Department said Friday that the world's biggest economy grew at an annual rate of only 1.3 percent in the second quarter.
"Friday's GDP data could charitably be described as shocking," energy consultant The Schork Group said in a report. "The U.S. economy is stalling."
Two reports released Monday showed manufacturing slowed in July in China, the world's second-largest crude consumer.
Investors will be closely watching the latest data about U.S. manufacturing, auto sales and unemployment this week.
In other Nymex trading in August contracts, heating oil rose 3.9 cents to $3.14 a gallon while gasoline gained 5.0 cents at $3.11 a gallon. Natural gas futures added 1.5 cents at $4.16 per 1,000 cubic feet.
NEW YORK (Reuters) – Reinsurer Validus Holdings Ltd (VR.N) on Sunday urged target Transatlantic Holdings Inc (TRH.N) to enter into discussions over its proposed takeover and said its offer is superior to one from Allied World Assurance Co (AWH.N).
Validus offered to buy Transatlantic earlier in July in a cash-and-stock deal worth about $3.5 billion at the time, trumping an all-stock bid by Allied World. While both bids are at a discount to Transatlantic's stock price, the Validus discount is smaller.
At one point, Transatlantic said Validus's offer could lead to a superior proposal, but the sides were unable to come to terms on a confidentiality agreement and Validus took its offer to shareholders.
"Ultimately there will be a vote on the Allied World deal and it seems pretty clear at this point that the Transatlantic shareholders - at least in my view - are going to vote that down," Validus chairman and chief executive Ed Noonan told Reuters.
"The Transatlantic shareholders don't like the idea that the board is throwing up obstacles."
Transatlantic was not immediately available for comment.
Validus said on Sunday it delivered a letter to Transatlantic's board "to reiterate the superiority of its proposal."
MONDAY CONFERENCE CALL
It urged Transatlantic's directors to enter into discussions with Validus and said it would hold a conference call for stockholders and directors on Monday.
"We feel very good with the feedback we've got from Transatlantic's major shareholders," said Noonan. "There's a general view that: 'The company is being sold, there was never a sales process, why wouldn't we want to talk to Validus if they have a superior offer.'"
Transatlantic said last week that it had sued Validus in federal court in Delaware, alleging that it made "false and misleading statements" to shareholders.
Validus at the time called the lawsuit meritless, saying the action was expected and that it would pursue its tender offer.
Validus offered 1.5564 shares and a special dividend of $8 in cash for every Transatlantic share. Allied World offered 0.88 share of Allied World for each Transatlantic share.
Transatlantic's shares closed at $51.21 on Friday, Validus ended at $26.59 and Allied World finished at $54.45.
At those prices, Validus' offer is about $3.1 billion and Allied World's is roughly $3 billion, according to Reuters calculations.
Noonan said Validus' deal was at a higher price to Allied World's and would also be a non-taxable transaction with the exception of the $8 a share dividend.
"The bigger picture is that... merging with Transatlantic would create one of the dominant reinsurers in the world," said Noonan. "We're a leader in the catastrophe business, in the energy reinsurance business, in the terrorism reinsurance business. The scale that the combined company would have in that business would be considerable." (Editing by Dale Hudson and Muralikumar Anantharaman)