Sunday seemed in many ways like it was building to the tragic climax in the fiscal cliff drama – but it was actually just the end of the opening act.
Vice President Joe Biden returned to D.C. yesterday at the reported behest of Senator Minority Leader Mitch McConnell, R-Ky. Unable to secure a deal with Senate Democrats, the chamber ended its session Sunday with only the promise of negotiations continuing.
The nation approaches the new year of 2013 without a deal in place to avert more than $600 billion worth of tax hikes and budget reductions. Should the White House and congressional leaders blow their New Year’s Eve deadline today, talks will continue – with the hope of finding some agreement before the terminal velocity from going off the cliff takes hold and the country freefalls into recession.
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But plenty of challenges remain even if President Obama and Republican lawmakers miraculously overcome their differences. The economy is still schlepping along at an agonizingly slow pace. Entitlement spending still puts the national debt on a course toward disaster. The partisan dispute could easily spill over into the 2014 mid-term elections in a way that only elevates tensions.
The president set the stage for this next act hours before the House gaveled into session on Sunday. Obama was unapologetic in blaming the GOP for what seemed to be the inevitable failure to compromise on taxes and spending.
“They say that their biggest priority is making sure that we deal with the deficit in a serious way, but the way they're behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected,” Obama said in a pre-recorded interview with NBC’s “Meet the Press” broadcast on Sunday.
“The only thing I would caution against,” he added, “is, I think, this notion of, ‘Well, both sides are just kind of unwilling to cooperate.’ That’s just not true. I mean, if you look at the facts, what you have is a situation here where the Democratic Party, warts and all, and certainly me, warts and all, have consistently done our best to try to put country first.”
But Republicans would respectfully disagree. “While the president was taping those discordant remarks yesterday, Sen. McConnell was in the office working to bring Republicans and Democrats together on a solution,” Don Stewart, spokesman for McConnell, said on Sunday. “Discussions continue today.”
In response to Obama’s comments, House Speaker John Boehner issued a statement, saying, “Republicans made every effort to reach the ‘balanced’ deficit agreement that the president promised the American people, while the president has continued to insist on a package skewed dramatically in favor of higher taxes that would destroy jobs.”
The lower tax rates first enacted under President George W. Bush expire on Tuesday. So does the patch on the Alternative Minimum Tax for 2012. With no farm bill in place, milk prices may soar. Two million Americans may lose their unemployment benefits. The Pentagon will start to trim more than $50 billion from its budget, a sum that other agencies must also match under the “sequestration” compromise from 2011.
Obama argued that the lower tax rates should be extended for 98 percent of the country, arguing that millionaires could afford to pay a little more to Uncle Sam.
Boehner was unable to forge a coalition within his caucus to support any rate hikes under his “Plan B.” Nor could Senate Majority Leader Harry Reid, D-Nev., and his GOP counterpart, Mitch McConnell of Kentucky, agree to a deal after a furious back-and-forth. Senate negotiations were bogged down based on whether: 1.) Rate hikes should start at $250,000 (as Democrats prefer) or $400,000; and 2.) Additional tax revenues can be used to minimize the sequestered budget cuts. Taken off the table in Senate talks, an earlier sticking point, was the use of a less generous measure of inflation known as the chained Consumer Price Index (which Democrats rejected) for Social Security and other entitlement programs.
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The breakdown leaves everything hanging on either a last-second bargain, or a simple “up-or-down” vote that Obama has requested on an emergency measure to avoid higher taxes on those with incomes below $250,000. But Obama’s request must survive partisanship to reach the floor.
The immediate tension revolves around whether wealthy Americans should pay more in taxes – although a failure to reach an agreement means everyone will owe more to the IRS. Senators opened yesterday with some optimism for a deal, yet claimed that hurdles existed outside their chamber.
“It is embarrassing, but almost every disagreement we’ve had is not because of the Senate where we’ve had lots of – you know, we’ve come to agreement on many things,” Sen. Chuck Schumer, D-NY, told ABC News’ “This Week with George Stephanopoulos.” “There are 50 hard right people in the House who don’t want to compromise. They don’t believe in any revenues. They say compromise is a dirty word.”
Sen. Jon Kyl, R-Ariz., countered Schumer on-air. “This is not just a problem with the House,” he said. “The House passed legislation that would avert the fiscal cliff, both on the sequestration side and on the tax rate side. They’ve already acted.”
But even if both sides resolve the tax issue, there is a dangerous set of piecemeal problems that still need to be settled in order to fix the deficit:
*The government technically breaches its $16.4 trillion borrowing limit tonight. Emergency measures can keep the government operating for about two months. Republican lawmakers plan to only increase the debt ceiling in return for an equal amount of spending cuts to entitlement programs. Obama, thus far, refuses to negotiate on those terms.
*Entitlement reform has been put off again, with no emerging consensus on how best to slow the long-term rate of growth of Medicare and Medicaid and federal retirement programs – the main driver of deficit spending. Republicans pressed for savings measures such as adopting a less generous cost of living measurement for Social Security and other benefits, or raising the eligibility age for Medicare from 65 to 67, but those discussions are on hold without a deal.
*While many Democratic and Republican lawmakers regret having put so much in savings on automatic pilot with sequestration – especially for defense – they haven't been able to agree among themselves on how to reprogram the cuts that total $1.2 trillion over the next decade.
*Major reform of the federal tax code, which both parties say is needed, will likely be delayed for another year. There is general agreement on the importance of streamlining the tax brackets and closing loopholes for the wealthy, such as capping the deduction on mortgage interest. But Republicans have yet to identify a single tax break they would be willing to eliminate. Nor will Democrats support policies that could raise taxes on the middle class.
And under the plans getting bandied about, all working Americans would see their taxes go up because neither party is insisting on extending a two-percentage point reduction to the Social Security payroll tax, a stimulus measure that is set to expire this week. That means any likely deal would be so austere that it could stifle growth, yet contain none of the comprehensive steps toward long-term deficit reduction.
“A small deal solves virtually nothing,” Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, told The Washington Post over the weekend. “We still have to find ways to cut spending, reform entitlements, raise more revenues and get the debt under control.”
