Congress and President Obama have just 26 days remaining until a series of tax rates and spending cuts known as the “fiscal cliff” take effect on January 1, 2013. If no solution is reached, tax rates will increase on nearly every Americans, and the spending cuts will have a dramatic effect on national defense and programs like Medicare. Over the past 48 hours Republican opposition to a decoupling of the tax cuts for the rich and middle class has softened. At the very least, a deal to avoid tax hikes on the middle class now appears more likely. Here are the latest developments as of December 6, 2012.
See also: An explanation of the fiscal cliff
President Obama and Speaker Boehner resumed talks yesterday via a phone call. No details from the conversations were released. No major breakthroughs are known to have taken place at this time. However, the Washington Post reports that many House Republicans are pressuring Boehner to give in to the White House request to extend lower tax rates for the middle class without extending the lower rates for the top two percent of income earners. However, the same article stated that Republicans would demand something in return, such as raising the Medicare age, in order to concede higher tax rates for the rich.
Yesterday Treasury Secretary Timothy Geithner said that the Obama administration would be “absolutely willing” to go over the fiscal cliff if Republicans do not agree to higher tax rates on the rich. In a speech before business leader President Obama also reiterated his demand that the rich share some of the burden in balancing the budget.
There are many signs that the Republican stonewall against higher tax rates on the rich may be crumbling. Yesterday Senator Tom Coburn (R-OK) expressed a willingness to see tax rates go up on the rich as part of a larger package to reform the tax code. Republican Senators Susan Collins from Maine and Tom Cole from Oklahoma also advocated extending the middle class tax cuts now and fighting over the tax rates for the rich next year.
On December 3, 2012 congressional Republicans sent their first counteroffer to President Obama on the fiscal cliff. The offer includes $800 billion in new tax revenue by closing loopholes and deductions, but does not specify which loopholes and deductions would be eliminated. In order to generate that amount of revenue popular provisions like the home mortgage interest deduction would likely have to be considered. The Republican plan would also raise the retirement age for Medicare, cut other health care programs, and cut benefits under Social Security to raise another $800 billion. The offer largely mimics the Simpson-Bowles proposal of November 2011, which was rejected at the time by both Congress and the White House.
The White House rejected the Republican offer within hours of its release, saying it did not meet the test of “balance” between new revenues and spending cuts. In addition, White House Press Secretary Jay Carney said the President would not sign a bill that does not raise tax rates on the top two percent of income earners.
If a deal is not worked out, a poll from Washington Post shows that 53 percent of Americans will blame Republicans in Congress, compared to just 27 percent who would blame President Obama.
On Fox News Sunday on December 2, 2012 Speaker John Boehner (R-OH) said he was “flabbergasted” by the White House proposal delivered by Treasury Secretary Timothy Geithner. President Obama’s opening bid included $1.6 trillion in additional tax revenue as well as over $400 billion in promised spending cuts. The tax revenue would come from increasing tax rates on the richest Americans, raising the tax rate on capital gains and dividends, as well as raising the estate tax. Obama also proposed extending the payroll tax cut or replacing it with another measure. Boehner said he told Geithner “you can’t be serious.”
Meanwhile, Geithner went on CNN’s State of the Union on Sunday and gave very indication that the administration is very serious about their offer. Geithner said the White House would not accept a deal to avert the fiscal cliff unless the compromise included higher tax rates on the rich as part of the deficit reduction package. Republicans have, thus far, been unwilling to accept any tax rate increases.
Behind the scenes negotiations between the White House and congressional Republicans likely will continue this week. However, both sides seem to be willing to take a hardline stance and preparing their members to go over the cliff. When asked about the possibility of going over the cliff, Boehner plainly stated, “There is clearly a chance.”
It now appears likely that most Americans will be spared a higher tax rate. However, the larger issue of spending cuts, tax rates for the rich, and the payroll tax cut still remain. In addition, the White House would like to reach some kind of agreement on the debt ceiling to avoid the kind of brinksmanship seen in the last debt limit negotiations. If no agreement is reached on those issues a part of the fiscal cliff will still remain.