Obama prods GOP on payroll tax

WASHINGTON (AP) — President Barack Obama accepted a move by Senate Democrats to scale back his Social Security payroll tax cut extension on Monday, then prodded Republicans to support it despite a requirement for the very wealthy to pay more taxes.

Obama also called on lawmakers to renew a program of extended unemployment benefits due to expire on Dec. 31. He said the checks, which kick in after six months of joblessness, are “the last line of defense between hardship and catastrophe” for some victims of the recession and a painfully slow recovery.

The president made his remarks at the White House as Republicans and Democrats in Congress said a holiday-season package was beginning to come into focus that could cost $180 billion or more over a decade. Elements include not only the payroll tax cut and unemployment benefit renewals, but also a provision to avert a threatened 27 percent reduction in fees to doctors who treat Medicare patients.

While there are differences over the details of the three principal components — many Republicans are reluctant to extend the tax cut — there is at least as much disagreement among senior lawmakers in the two political parties over ways to cover the cost so deficits don’t rise.

House Republicans are drafting legislation to extend an existing pay freeze for federal workers as partial payment for the tax cut and unemployment benefits. Other cost-savers are expected to include a proposal Obama advanced earlier this year to raise pension costs for federal employees, officials said. The bill may also include another presidential recommendation, this one for a surcharge on Medigap policies purchased by future Medicare recipients.

Officials said that to offset the two-year, $38 billion price tag of the Medicare provision, House Republicans want to cut funds from the year-old health care legislation that stands as Obama’s signature domestic policy accomplishment. Some Democrats want instead to count defense funds approved but unspent for the wars in Iraq and Afghanistan — a proposal that many GOP lawmakers deem an accounting gimmick.

The Medicare proposal enjoys strong popularity among lawmakers in both parties. House Republican leaders signaled last week they intend to include it in the overall package as a sweetener for members of the party’s rank and file who are unhappy at the prospect of extending the payroll tax cut.

GOP critics say there is no evidence that the current tax cut has helped create jobs, and also say they fear the impact of a renewal on the deficit and on the fund that pays Social Security benefits. A majority of Republican senators voted last week against a plan backed by their own leadership to extend the cut.

But Obama noted House Speaker John Boehner, R-Ohio, has said that the renewal would help the economy, and said the party’s Senate leaders had made similar comments.

“I couldn’t agree more. And I hope that the rest of their Republican colleagues come around and join Democrats to pass these tax cuts and put money back into the pockets of working Americans,” the president said.

Obama also added, “I know many Republicans have sworn an oath never to raise taxes as long as they live. How could it be that the only time there’s a catch is when it comes to raising taxes on middle-class families? How can you fight tooth-and-nail to protect high-end tax breaks for the wealthiest Americans, and yet barely lift a finger to prevent taxes going up for 160 million Americans who really need the help?”

He spoke as Senate Democrats unveiled revisions that cut the cost of the administration’s proposal by one-third, to an estimated $179 billion. As rewritten, it deepens the current Social Security payroll tax cut and extends it until the end of 2012, but jettisons Obama’s request to give businesses relief at the same time.

Republicans were critical despite the changes.

“Frankly, the only thing bipartisan about this latest political gambit is opposition to the permanent tax hike on small businesses to pay for temporary one-year tax policy,” said Sen. Orrin Hatch, R-Utah, the senior Republican on the Senate Finance Committee. Republicans often refer to the proposal as a tax increase on small business owners in hopes of recasting Democratic claims that it would fall on “millionaires and billionaires.”

Advanced by Sen. Bob Casey, D-Pa., the revised proposal also scales back the surtax on seven-figure earners that Democrats had originally proposed to cover the bill’s entire cost, from 3.25 percent to 1.9 percent.

Also included are higher fees for consumers whose mortgages are from Fannie Mae and Freddie Mac, as well as a GOP proposal from last week to make sure millionaires don’t receive unemployment benefits or food stamps.

Belgium secures government after record

BRUSSELS (Reuters) – Belgium finally secured a government on Monday after record-long talks to form a coalition that promises the most profound state reform in decades and a commitment to restore the country’s finances.

The new six-party coalition has a mammoth 180-page deal to enact having already lost a year and a half of a four-year term.

The government must satisfy demands of the Dutch-speaking Flemish majority for devolution of further powers to Belgium’s regions, and may have to redraw a budget that economists say is based on too optimistic a growth forecast.

That will be no easy matter. Budget talks themselves dragged on for six weeks and only concluded at the end of an 18-hour session after Standard & Poor’s had cut Belgium’s credit rating to AA from AA+.

The new government will be headed by French-speaking Socialist leader Elio Di Rupo. It retained many of the ministers from the caretaker government of acting prime minister Yves Leterme, albeit in different roles.

Flemish Christian Democrat Steven Vanackere becomes finance minister and francophone Liberal Didier Reynders foreign minister, a straight job switch. The cabinet will be sworn in on Tuesday afternoon, the palace said.

Di Rupo will be the first native French-speaking prime minister of Belgium since 1979 and the first from the region of Wallonia since 1974, as well as the first son of immigrants and the first openly gay person to be premier of the country.

The more right-leaning Flemish electorate has already expressed concern about being led by a French-speaking Socialist — and what is more one whose command of Dutch is limited.


A poll in Le Soir showed just 29 percent of Flemish people have confidence in Di Rupo, although his support in French-speaking Wallonia was 69 percent.

N-VA, a party that wants Flanders to break free from Belgium, has 35 percent of support among Flemish voters.

Talks including N-VA were deadlocked for months, prompting speculation that 181-year-old Belgium could break apart.

The N-VA’s eventual exit opened the door for a deal resolving electoral boundaries around the capital Brussels, devolution of more powers to the regions and financial transfers, issues over which Belgium’s linguistic groups have argued for years.

Belgium also has a budget battle on its hands and might be forced to toughen austerity measures that already drew 50,000 protesters onto the streets last Friday.

Belgium has found itself in an uncomfortable middle ground between triple-A rated euro zone countries and those at the periphery of the single currency bloc whose sovereign debt has been sharply sold off since the start of last year.

Belgium’s public sector debt totalled 96 percent of gross domestic product last year, putting it behind only Greece and Italy in the euro zone and on a par with Ireland.

It has also been saddled with providing the bulk of state guarantees to bailed out Franco-Belgian financial group Dexia.

Belgian 10-year yields shot up to almost 6 percent at the end of October, just below the level that prompted bailouts in fellow euro zone members, with a spread over German bunds, a sign of the perceived risk, of 3.72 percentage points.

Belgian yields have fallen sharply since then, and by far more than among euro zone peers, to below 4.4 percent for 10-year debt, with a spread now tighter than 220 basis points.

Despite the formation of a government and a deal to bring the deficit below the EU limit of 3 percent next year, risks remain. Many economists say Belgium is unlikely to achieve the 0.8 percent economic growth on which the budget is based.

Standard & Poor’s, when downgrading Belgium at the end of November, said there was an increased likelihood that Belgium’s financial sector would need further support and that this was likely to weigh on the already swollen public sector debt.

It added that political uncertainty was undermining Belgium’s creditworthiness.

(Reporting By Philip Blenkinsop)

Afghanistan’s allies pledge to stay for long haul

BONN (Reuters) – Foreign governments pledged on Monday to support Afghanistan long after allied troops go home, with or without a political settlement with insurgents once seen as the best way to prevent a new civil war.

At a conference of more than 80 countries but boycotted by Pakistan, they said even after most foreign combat troops leave in 2014, the Afghan government will not be allowed to meet the fate of its Soviet-era predecessor, which collapsed in 1992.

“The United States intends to stay the course with our friends in Afghanistan,” Secretary of State Hillary Clinton said. “We will be there with you as you make the hard decisions that are necessary for your future.”

Hosts Germany sought to signal Western staying power in the country, where al Qaeda sheltered under Taliban protection before the September 11 attacks, at the gathering in Bonn.

“We send a clear message to the people of Afghanistan: We will not leave you on your own. We will not leave you in the lurch,” said German Foreign Minister Guido Westerwelle.

Ten years after a similar conference held to rebuild Afghanistan, the Afghan war is becoming increasingly unpopular in Western public opinion — especially since U.S. forces found and killed al Qaeda leader Osama bin Laden in Pakistan on May 2 in a raid that removed a central pretext of the 2001 invasion.

Western countries are under pressure to spend money reviving flagging economies at home rather than propping up a government in Kabul widely criticized for being corrupt and ineffective.

And as expected, delegates at the Bonn conference steered clear of making specific pledges to make up a shortfall in funding for Afghanistan estimated by the World Bank at some $7 billion a year from the end of 2014.

For now, nobody wants to show their hand too clearly in the hope that someone else — from the United States to Europe, the Gulf to Asia — will come forward to foot a share of the bill.

Brewing confrontations pitting Washington against Pakistan and Iran, two of Afghanistan’s most influential neighbors, have also added to despondency over the outlook for the war.

Pakistan boycotted the meeting after NATO aircraft killed 24 of its soldiers on the border with Afghanistan in a November 26 attack the alliance called a “tragic” accident.

But delegates from Russia to Iran to China, all uneasy about the U.S. military presence in their neighborhood, were nonetheless able to agree with Western powers “the main threat to Afghanistan’s security and stability is terrorism.”

“In this regard, we recognize the regional dimensions of terrorism and extremism, including terrorist safe havens, and emphasize the need for sincere and result-oriented regional cooperation…” a conference statement.

Pakistan is accused by Washington and Kabul of providing “safe havens” to insurgents to use to counter the influence of rival India. Pakistan says it being used as a scapegoat for the U.S. failure to bring stability to Afghanistan.


The mood at the Bonn conference was a far cry from the early days of the Afghan war when, fresh from toppling the Taliban, Western powers hoped to bring permanent peace to a country which has now been at war for more than three decades.

But with problems of insecurity, governance, corruption and narcotics inside Afghanistan, compounded by insurgent sanctuaries in Pakistan, objectives have been scaled back.

By the time of a conference in London on Afghanistan in January 2010, Western governments had agreed insurgents could be brought into peace talks if they were willing to cut ties with al Qaeda, give up violence and respect the Afghan constitution.

But even that goal has proved elusive. Embroynic contacts with the Taliban have yielded little, and foreign governments have been preparing increasingly for a scenario in which there is no peace settlement with the Taliban even before the before most foreign combat troops leave in 2014.

The aim now is to leave behind a government which is just about good enough to survive, even if fighting persists in parts of the country and the Taliban insurgency remains active.

Some are still hoping Pakistan will use its influence to deliver the Afghan Taliban into a political settlement.

Afghan President Hamid Karzai told reporters Pakistan had missed a good opportunity to discuss its own issues and the future of Afghanistan by not attending the Bonn conference. “But it will not stop us from cooperating together,” he said.

Asked what he wanted Pakistan to do to help bring peace in Afghanistan, he said: “Close the sanctuaries, arrange a purposeful dialogue with those Taliban who are in Pakistan.”

Clinton said she expected Pakistan to play a constructive role in Afghanistan, even as she voiced disappointment that Islamabad chose not to attend the conference.

But British Foreign Secretary William Hague said that Afghanistan could still have a bright future even if the Taliban were not brought into a political settlement.

“It may take a longer time to bring about our objectives but we should not be deterred at all by Taliban reluctance to come to the table…” he told the BBC.

Foreign governments were also determined to try to dispel at least some of the pessimism seeping into the Afghan project.

Indian Foreign Minister S.M. Krishna, whose country became the first to sign a strategic partnership agreement with Afghanistan — much to the irritation of Pakistan — pledged India would keep up its heavy investment in a country whose mineral wealth and trade routes made it “a land of opportunity.”

In a rare positive development, Clinton said the United States would resume paying into a World Bank-administered Reconstruction Trust Fund for Afghanistan, a decision that U.S. officials said would allow for the disbursement of roughly $650 million to $700 million in suspended U.S. aid.

The United States and other big donors stopped paying into the fund in June, when the International Monetary Fund suspended its program with Afghanistan because of concerns about Afghanistan’s troubled Kabul Bank.


In a sign of quite how difficult it will be to bring peace to Afghanistan, the conference was nearly overshadowed before it started by a row with Iran — increasingly at odds with the United States and European powers over its nuclear program.

Tehran said on Sunday it shot down a U.S. spy drone in its airspace and threatened to respond. [ID:nL5E7N40D9] International forces in Kabul said the drone may have been one lost last week while flying over western Afghanistan.

Iran has been accused in the past of providing low-level backing to the Taliban insurgency, and diplomats and analysts have suggested Tehran could ratchet up this support if it wanted to put serious pressure on U.S. forces in Afghanistan.

Foreign Minister Ali Akbar Salehi on Monday also reiterated Iran’s opposition to the United States keeping some forces in Afghanistan after 2014.

Simon Gass, NATO’s senior civilian representative in Kabul and former British ambassador to Tehran, downplayed the prospect of Tehran acting as a spoiler in any Afghan settlement.

He recalled Iran was a historic foe of the Taliban, which has a record of hostility to Afghan Shi’ites, Iran’s co-religionists.

Despite its dislike of the Taliban “Iran has a history in Afghanistan of supporting some Taliban groups in different ways. That could continue. We shall have to see,” he said.

“But what I would say is that my quite long experience of Iran is that Iranians are realists, and once the international agreements are in place which define the security architecture for Afghanistan after 2014, my belief is that Iran will begin to adjust to those new realities,” he told Reuters.

(Additional reporting by David Brunnstrom, Arshad Mohammed, Sabine Siebold, Missy Ryan and William Maclean; Writing by Myra MacDonald; Editing by William Maclean)